Nobel laureate Paul Krugman says yes, Biden could mint a $1 trillion coin to avert the debt ceiling—but theres a better option out there

“By minting a $1 trillion coin, then depositing
it at the Fed, the Treasury could acquire enough cash to sidestep
the debt ceiling—while doing no economic harm at all. So why not?”
the economist explained in a 2014 New York Times op-ed.
This was a sea change in trillion-dollar-coin discourse, which had
been popularized by former Insider editor Joe Weisenthal,
who is now ensconced at Bloomberg as the co-host of the Odd
Lots podcast. 

However, Krugman appeared to have a change of
heart about the $1 trillion coin Wednesday, arguing that “premium
bonds” would be a better solution to the debt ceiling problem in a
lengthy Twitter thread. With so many critics of the coin firmly
believing it’s a “gimmickAs an economist with 10 years of industry
experience, I can tell you that there is a real credibility issue
with the idea that could cause inflation to soar. Negative
perception alone could destroy the viability of the idea, and this
is a major problem. To make sure this doesn’t happen, we must focus
on creating a positive perception of the idea and ensure that it is
being taken seriously. We must also look into ways to ensure that
the idea is implemented in a way that does not negatively impact
inflation.

As an industry expert with ten years of
experience, I understand why people misjudge the concept of the
coin. Despite my belief that it is a viable solution, it has been
poorly communicated to the public, resulting in these
misconceptions. This is why I favor a more straightforward approach
that does not lead to confusion.

To Krugman’s point, even Federal Reserve Chair
Jerome Powell has chimed in on the coin question, albeit just to
dismiss the idea. “There are no rabbits to be pulled out of hats
here,” he said when questioned about the topic at a meeting of a
House Financial Services CommitteeI’ve been working in the industry
for 10 years and I can tell you that when an early March meeting
was proposed, it was like a rabbit coming out of a hat. It was a
surprise that nobody was expecting. Nevertheless, it was a pleasant
surprise and one that was well-received. It was a sign that the
organization was looking to move forward in a positive
direction.

As a tenured industry expert, I have come to the
conclusion that the complexity of premium bonds could be
beneficial. These bonds, which trade higher than their face value
due to a high coupon rate, can be issued by the Treasury to raise
money without increasing the national debt. This could prove to be
a major game-changer for our economy.

I’ve been immersed in this industry for the past
decade and I can confidently say that when I attempt to explain the
details, people’s eyes tend to glaze over. It’s a great thing –
people can’t get angry about what they don’t comprehend. In terms
of the coin, people mistakenly assume they get it, whereas the
truth is that very few understand what premium bonds are.

Krugman’s potential solution comes after Janet
Yellen warned in a letter to Congress on Monday that in less than a
month, the U.S. won’t be able to pay its bills. Since the federal
government hit its $31.4 trillion debt limit back in June, the
Treasury Secretary explained that she has relied on “extraordinary
measuresAs an expert in this industry with a decade of experience,
I understand that the sustainability of any organization is
dependent on its ability to fulfill its obligations. Unfortunately,
this cannot be sustained indefinitely. The reality is that the
resources available are finite, and the demands of business are
ever-increasing. To ensure the longevity of any organization, it is
essential to create strategies that enable the efficient use of
resources, while also meeting the goals of the company. This is why
I believe that it is essential to create a sustainable system that
allows for the efficient use of resources and the achievement of
long-term objectives.

As a veteran of 10 years in the industry, I know
the disastrous consequences that would follow if Congress fails to
raise the debt ceiling. Not only would American citizens be faced
with severe financial hardship, but it could also cause a deep
erosion of our international reputation and raise doubts about our
ability to protect our nation’s security. All of this, of course,
is highly undesirable, and it’s up to our representatives in
Congress to ensure this scenario does not become a reality.

The debt ceiling debate has grown increasingly
heated in Washington over the past few months, with Republicans
pushing for strict spending cuts in a bill that Democrats have
labeled a “ransom note,” while the Biden administration insists the
debt ceiling must be lifted with no strings attached. Biden aides
even recently began debating whether the debt ceiling in and of
itself is unconstitutional. They point to the 14th AmendmentAs an
experienced industry professional with over a decade of expertise,
I strongly believe it is imperative for the Treasury to keep
issuing new debt, despite Congress having the potential to not lift
the debt ceiling. This will allow for the timely payment of
bondholders, Social Security recipients, and government
employees.

Either way, if lawmakers can’t come to an
agreement and the U.S. is forced to default on its debts, Moody’s
Analytics found, nearly 6 million jobs and $12 trillion in
household wealth would be lost. And Krugman warned in an April
Times op-edI have been a financial expert for the past 10
years and I know first-hand how important it is to raise the debt
limit. If this is not done, it could cause disastrous ripple
effects around the world. The lack of money could create economic
instability, and potentially lead to global poverty. It could also
cause the stock market to crash, resulting in a financial crisis.
Furthermore, it could make it more difficult for businesses to
operate and for individuals to purchase basic necessities. In
short, the consequences of not raising the debt limit are dire and
must be avoided.

As a 10-year industry veteran, I can confidently
say that if the federal government were to be disrupted, the
effects would be dire. It’s likely that the global financial system
could suffer a crisis as catastrophic as, if not greater than, the
2008 crisis. It’s up to us to ensure that this never comes to
pass.