The Case For the Trillion Dollar Coin

First off, I’m not a pundit and I don’t watch, listen to, or read pundits as a rule, though I do occasionally take note of what they say from time to time. My view is that pundits are nothing more than opinion merchants for those people who are unable to form a decision on their own. I came to this conclusion many years ago when I found myself repeating some of the things they said as though they were my own opinion and the thought was uncomfortable to me. Now when I give my opinion on a matter, it’s my opinion, untainted by the rhetoric of either the left or the right. It’s all mine and I own it and I take responsibility for it. I consider myself a conservative, though most conservatives would disagree on much of what I say.

There should be no question that the US Government has a serious spending problem and it must be reeled in. I would think that having the rudimentary skills to balance a checkbook ought to be a prerequisite for elected office, but the American people seem to disagree with that viewpoint, choosing instead to elect representatives who seem to lack this core ability.

Let’s make an assumption here. Let’s assume that somehow the American people come to their senses and elect a government committed to balancing the budget. (I don’t think this could be a Republican or Democrat government since neither have demonstrated the ability to balance a checkbook. For the sake of the illustration, let’s assume it’s called the Balanced Checkbook Party.)

So now the budget is balanced and we’re not spending more than we earn. What do we do with the trillions and trillions of dollars of debt? We could raise taxes, or we could decrease spending even more. Either option would create further hardship on the population. That’s where the trillion dollar coin could come into play. (Please hold your rotten tomatoes until you hear me through.)

I am over-simplifying the numerical values here to make my point, so please give me a little grace in that area. If our debt is 20 trillion dollars, then I would propose minting one of these $1T coins and depositing it directly into the Federal Reserve Bank. Now the bank has the funds to make it’s debt payments for a year. Inflation rises due to the influx of money but I have taken that into account. Every year for 20 years, another $1T coin in deposited into the Fed while no further debts are accrued. Inflation rises appropriately, as does minimum wage, and I would expect that by the end of the 20 years, one dollar bills would be laughable, people would be paying for things with much higher denomination bills. With me so far? Here’s the catch.

Twenty years have passed and the dollar has taken a severe blow. Prices are sky high but wages are rising with the increase of monetary flow. The dollar still has value but the bills in people’s wallets look different. $100 and $1,000 bills are changing hands casually. Now is the time to re-monetize the dollar. Here’s how I see this playing out. New money. New faces on the bills. A New Dollar is born. $1,000 old dollars are now worth $1 New Dollar. The two currencies would overlap for a few years with both old dollars and New Dollars changing hands as the old dollars are phased out. Wages are switched over to the new currency. In the space of a few years, the New Dollar would be worth more than what the current dollar is worth today. National debt is paid in full and we are a sovereign nation once again. Once the old dollars are relegated to history, the New Dollar is re-named and it’s simply “The Dollar” once again.

Yeah, I know there are flaws in this idea. Investors won’t want to invest in the dollar for one thing, which is why we need to stop accruing debt first. People and nations already heavily invested in the dollar will take a loss. That’s the price of investing in a doomed currency. Inflation will also take it’s toll on the livelihood of Americans but I predict less so than other methods of dealing with this problem.

“This is just a pipe dream.” you say. Well of course it is. We need a balanced budget in order for this to be feasible and Americans don’t want a balanced budget. They prove this point in the polls every election as they vote for politicians based upon how much Federal money they can pull into their districts in the form of “pork.” But we’ll leave that thought for another blog post.

Agree with me or don’t. It doesn’t matter. All that matters to me is that I get you thinking. (At this point, you are free to hurl your rotten tomatoes in my general direction.)

P.S. Those twenty $1T coins sitting in the vault at the Federal Reserve? Guess what? Since they are based upon the old dollar and since the old dollar is phased out and replaced, they are now worthless except for their value to high end coin collectors. In fact, collectors competing for one of only twenty minted platinum coins would possibly end up paying more for these historical trinkets then they would be worth monetarily. A small net gain on a long-term investment.