I think that this is it. Let’s say that there are $X in total circulation. After minting these coins, then the money in circulation will be $X+2 trillion. So the new value of your current dollar would be X/(X+2 trillion).
You would have basically made everyone in the country’s money worth less. But that’s good for a debtor because the debtor now effectively owes less money.
I think went a debtor (like the U.S.) deliberately does something like that you are technically defaulting on your debt.
Isn’t a bond a liability? If the government sells $1 trillion worth of bonds, it now has $1 trillion worth of cash assets, which is offset by the $1 trillion of liability.
If it mints a Trillion Dollar coin, there is no offsetting liability.
Which is the whole point; to offset that liability.
You would still have the same amount of financial assets in the private sector. Granted the government would now have room beneath the ceiling to sell more bonds but they’ve been selling bonds all along and I don’t see any uncontrollable inflation.
It is not a default.
This sort of thing happens all the time (albeit not by merely printing new money).
Inflation is a constant in the world. Indeed a little bit of inflation is a good thing (as the flip side, deflation, is a definite bad thing). In short, inflation means your dollar today is worth less tomorrow. When you buy debt you (should) account for inflation when considering what return you want on that debt (so, inflation % + some additional % for profit). This is normal.
Countries have all sorts of ways to affect monetary policy. Currency markets adjust the exchange rates accordingly. It is not uncommon to hear one country say they will do “X” and other countries expressing their anger because it devalues the debt they own. As such, a country needs to be careful. Devaluing the debt helps they country owing it but they generally pay for it as the markets adjust (e.g. the country now owes less but its currency is devalued so it costs them more to buy stuff making operations more expensive to them…for example any new debt the government issues will have to offer a higher percent of return for the investor).
There would certainly be an immediate devaluing of US currency which means everything is more expensive for Americans (and the government) to buy.
The question is how bad would such a thing be? I honestly do not know in this case.
It is quite possible that the economy re-invigorates and we create more wealth and the dollar strengthens. So, if you hold debt do not sell it the day after the US does this. Down the road the debt will be worth more. Conversely, if you think the US put itself on the path of rampant inflation then you want to dump your debt ASAP.
If you dumb $2 trillion into the economy at once, you will see uncontrollable inflation. Your scenario has the government creating trillions of dollars out of nowhere. And they are putting it in the private sector because they’re giving the trillions they created to the bondholders to retire the debt.
Which is what the Fed did recently with quantitative easing and it did not cause uncontrollable inflation.
Wrong. There are three steps here:
Create one trillion dollars worth of currency with this platinum coin scheme. Net change in assets: Govt +$1T cash.
Exchange one trillion dollars worth of currency for one trillion dollars worth of bonds. Net change in assets: Govt -$1T cash, +$1T govt. bonds; Investors +$1T cash, -$1T govt. bonds.
Government retires bonds. Net change in assets: Govt -$1T govt. bonds, +$1T retirement of liabilities.
You never do anything to cancel out the change in step 1.
So if the value of a dollar drops vs the rest of the world, doesent that tend to make domestic products more cost effective? In some respects couldnt that have a huge positive effect as domestic manufacturing would increase, along with it, more jobs.
Sure but then other countries can do the same thing right back. They’ll have an easier time going there too since they can say you did it first.
It would not make you better off, because that increase in domestic manufacturing would only partially offset the loss caused by more expensive imports. That’s why you’re importing the stuff in the first place.
Well, it would not be an immediate effect to be sure but if nothing changed than in time the jobs should come back to the US. In theory.
Can someone answer this? Thanks!
Please read what I say. Are bonds financial assets or not? I said that there would be no increase in financial assets. Would there be an increase in cash? Yes. Would there be a decrease in bonds? Yes, because by buying those bonds the treasury would be retiring that debt.
Is there a financially meaningful (to the economy) difference between cash and bonds? You could argue that treasury bonds are equivalent to cash since you can always sell them for cash. Is that true? I don’t know.
You’re creating a trillion in assets and, at the same time, destroying a trillion in assets. Yes, it happens in two steps but so what? That money is not circulating between those steps.
I’m not at all convinced that this is a workable plan. It sounds awfully shady to me, but I’m not seeing any good arguments against it.
I’ll put forth one argument against it: People won’t understand it, will assume that it will be inflationary, and the markets will react badly because of it. That’s the soundest argument I can think of.
So, if nothing else, the plan is psychologically unsound. That in itself is an argument against it. On the other hand, how would the markets react to the U.S. going into default? That could well be worse.
My WAG:
“Minting” is the actual process of manufacturing the currency. The government is minting new money all the time (to replace old, worn out money).
“Issuing” is the act of placing it in circulation.
The government may have a warehouse filled with money it has minted but it is not “issued” because it is not in circulation. It waits (usually) till old money is destroyed and then it is taken out and put in circulation to replace it.
I don’t understand why the widget suddenly costs 2 dollars. It’s cost of production and materials has not changed, why would an influx of money change that other than simply raising prices out of greed?
I read what you said. What you said is wrong. In total you’re creating $1T worth of assets (the issue of the $1T coin), destroying $1T worth of assets (the bonds that are being retired) and destroying $1T worth of liabilities (the debt owed by the government to bond-holders). That’s a net change of +$1T assets, with nothing to back it up but a bit of bookkeeping sleight-of-hand.
Well, the example is oversimplified but the main reason is your profit on the sale of the widget has just been cut in half. If you want to retain that profit margin you will need to raise the price. Maybe not a whole dollar but the price will go up. When your suppliers start passing the cost up the chain I think you will get to the full dollar increase (in this simplified example). So, not a whole dollar on already produced widgets you have in stock (although there will be a price increase to maintain margin) but a whole dollar once the effects fill the chain from raw materials to item on the shelf.
You also have supply and demand. Imagine I doubled the money supply and distributed it into the Doper economy. Now, instead of having $10 in your pocket you have $20 in your pocket. You will think you are rich and go out and buy stuff. Thing is everyone else is too. Demand goes up, prices go up.
Indeed, as a consumer, your best bet when the money is put in and inflation is around the corner, is to go buy stuff before the manufacturers increase their prices in response. There will be a lag there that could be exploited.
Because Whack-a-Mole has just given himself enough money to buy everything in the entire economy. To leave it at the same price lets Whack-a-Mole buy everything you own for nothing more than the cost of running his printer.
This is probably a better answer than the one I just gave.
There seems to be some confusion in this thread. Let me help. 
Creating huge sums of fiat money can be inflationary or hyper-inflationary. It is better for a sound government to borrow money than to create its own fiat money. But no one has suggested anything different from this. There is no debate about “To borrow money or to create fiat money; that is the question.” What the debate is about is What do we do if the lunatics are indeed in control of Congress and are preventing the government from borrowing the money it definitely needs?. As such, much of this discussion is backwards. The people now pretending to be worried about inflationary fiat money are precisely the same people eagerly trying to force down the value of T-bonds and the Dollar via this crisis.