Everyone’s favorite economist, Paul Krugman, is now in favor of the “Trillion – dollar coin” illusion. As predicted, the question of out of control federal spending has disappeared and been replaced by discussion of this pesky debt ceiling that’s crimping our style. Their solution, one that was intended as parody just a few months ago and is now considered conventional wisdom, is the trillion-dollar coin. The Secretary of the Treasury is supposed to deposit a trillion imaginary dollars into the vault and then continue issuing debt, now backed by this chimera.
Federal government spending is based first on revenue and when spending exceeds revenue, then borrowing. When borrowing becomes impossible either we curtail spending or borrow more, using as collateral a handful of magic beans: in this case, a phantom trillion-dollar coin made of platinum but really, it could just as easily be a huge pile of dog feces.
So the dunk drinks up his cash at the local bar, turns to running a tab, and when the proprietor, patience exhausted, finally cuts him off, the drunk goes home, piles up a load of …anything, in his basement and returns to the bar, offering script backed by whatever he says is in his basement. Unless he’s been indulging in his own wares the proprietor won’t fall for such insanity. Our country, on the other hand, seem ready to play the game. Anything to avoid reality and stretch out this doomed scenario for as long as possible.