By Teresa Welsh |
Minting a $1 trillion is not even worth a penny for the thought.
The current frenzy surrounding the $1 trillion coin has certainly been entertaining. As a former mint director who has first hand knowledge of the arcane laws, regulations and rules of coining, I'm one of the few beneficiaries of this debate. Unfortunately, the rest of our country loses.
Assuming we could get past the dubious legality and a $1 trillion coin could avert the imminent debt ceiling crisis, should it be minted? It still would not fix the root cause. It would kick the can down the road until the next imminent debt ceiling crisis. The best predictor of future performance is past performance. Past performance is not good.
What will happen is that the federal government will get used to easy money without accountability. Why stop at the debt ceiling crisis? How about more $1 trillion coins to fund the federal budget? Why only reduce the national debt when you can eliminate it with a few more coins? Why a $1 trillion coin when a $100 trillion coin would be much more cost-effective and leave us some room to spare?
And it might be easy money, but it's not free. Creating money out of thin air in trillion dollar chunks would have a devastating impact on the world's confidence in America's leadership. Confidence is what sustains the value of the dollar. Say goodbye to dollar holdings and Treasuries and welcome back inflation, Weimar-style.
You can't avert a debt ceiling crisis by leveraging fiat currency and accounting gimmicks. We have a crisis because we spend more than we take in. And we've allowed our fiscal problems to grow to ginormous proportions. That leaves us with the easier political solution of increasing revenue by raising taxes on the rich and the politically disastrous solution of cutting spending.
The problem is that raising taxes on the rich alone will not eliminate our budget deficit and thus avoid hitting the debt ceiling. Taxing all $1 million earners at 100 percent would eliminate 9 months of the deficit (or fund government 88 days). There would still be a shortfall of $400 billion.
The only way to a balanced budget (or even a budget surplus!) is to include spending cuts, and big ones at that. Let's assume we did not want to default on the national debt by cutting interest payments. Nor did we want to cut entitlements and mandatory spending like Social Security, Medicare, Medicaid, family assistance, and unemployment support.
You could eliminate what's left, namely defense and the rest of government (federal courts, highways, foreign aid, education, agricultural subsidies, etc…), and just cover the annual budget deficit. The bottom line is that you can't balance the budget without cutting entitlement spending.
What would avoid a debt ceiling crisis? We need to forget about gimmicks like minting the frivolous $1 trillion coin. Instead, we need to lead the way by making the difficult decisions to get our fiscal house in order.
About Edmund Moy 38th Director of the U.S. Mint
Stephanie Kelton Associate Professor of Economics at the University of Missouri-Kansas City
David John Senior Research Fellow at the Heritage Foundation
Dean Baker Codirector of the Center for Economic and Policy Research
Phil Kerpen President of American Commitment
Ted Gayer Codirector and Senior Fellow of Economic Studies at the Brookings Institution