Paul Krugman counters critics by minting trillion dollar coin

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Paul Krugman counters critics by minting trillion dollar coin

The Nobel laureate and noted economist Paul Krugman countered some of the criticisms on several strategies to deal with the debt ceiling crisis that includes minting a trillion-dollar coin.

If the strategies are undignified, the financial crisis is caused by a faction in Congress refusing to allow the government to pay bills it has already incurred, according to Krugman. You don't have to wear a helmet in a construction zone because you think it looks dorky. He pointed out the possibility of minting a platinum coin, an idea that has been widely proposed through various economic and political circles, with a face value of $1 trillion, depositing that coin with the central bank and spending out of the bank account that has been created. Treasury Secretary Janet Yellen shot down the idea in an interview with The Washington Post earlier this month. She said it wasn't a given that the Federal ReserveFederal Reserve would even accept the coin as legitimate, which could spark a whole slew of legal battles.

Inflation: Refuting the argument that the coin solution would be inflationary, Krugman explained that such a step would not lead to an increase in the monetary base.

If Treasury drew on a coin-backed account, the Fed wouldn't have to increase the monetary base, it could be offset by selling Fed-held securities, he tweeted.

The Fed would be doing exactly the same borrowing as before, except that it would be selling securities to the private sector rather than Treasury. In their first meeting on the debt ceiling crisis, President Joe Biden and House Speaker Kevin McCarthy won't come with any specific proposals to avert a possible default, both sides indicated on Tuesday, according to a Reuters report.