Why are the consequences of minting a trillion dollar coin so much worse than the consequences of default?
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It’s not necessarily. The issue with the coin is that it’s legally questionable, and there would be people on the right claiming that Biden had cheated, violated the Constitution, etc. and challenge it in court. If they win, the US defaults because it’s now way above the debt ceiling, and all heck breaks lose in the economy. The problem is the uncertainty.
The alternative is negotiating an increase in the debt ceiling that’s unquestionable.
It’s not something you want to rely upon as a solution to the debt ceiling standoff.
The trillion dollar coin situation is a true loophole. The Treasury has the ability to mint new platinum coins without Congressional approval because platinum coins are collectors items, and Congress didn’t want to bother with voting on each individual design. It’s very clear that this was not intended to actually have an impact on fiscal policy at the level a trillion dollar coin would have.
This means that if the Treasury went ahead and minted the coin, there would be a legal challenge, and it’s not clear who would win. If Treasury loses and the debt ceiling has not been raised, then the US immediately defaults, and all the bad things we’re currently trying to avoid happen. Much better to actively pursue an agreement that actually resolves the standoff (for now) than to hope that a small panel of judges (perhaps eventually the Supreme Court, and you know how those guys are) is willing to put up with your loophole for the good of the economy.
Not going to address the legality I’m just going to assume you can do it.
It’s not. The trillion dollar coin would be mildly inflationary, not what we need right now but not catastrophic. It would increases the money supply, but spoilers so would issuing a trillion dollars worth of T bonds. It would be more inflationary than the T bonds but not hugely so. The risk would be that we would make a habit of it. i.e. let’s stop issuing T bonds and just issue platinum coins. If you make a habit of it you will start to get legitimately problematic inflation. As it’s a immediate increase in the supply of money. Where as with T bonds the money supply increases because of the interest on the bond. This spreads the increase out over years if not decades. Making the inflation less noticeable.
Great responses, all. Apparently the idea of something solving the standoff AND preventing future standoffs is a pipe dream.
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