It’s rare that Jon Stewart “screws the pooch,” as they say, but on Thursday night’s show he apparently did just that, at least if a Nobel Prize winning economist can be believed.
One solution to the debt ceiling debate that has been bandied about is to mint a $1 trillion coin, which is arguably within the authority of the Executive Branch. A vast misunderstanding among the general public, one which is heavily fueled by the media, is that the debt ceiling influences the amount of debt we have. It doesn’t. It simply allows us to pay the bills we’ve already racked up, which is actually required by the 14th Amendment to the Constitution.
The idea of the trillion dollar coin might have started out as a joke, but none other than Nobel Prize winning economist, Paul Krugman, feels it’s not such a bad idea. As he explains it, it’s really just an accounting gimmick.
The first level is that, in practice, minting the coin would be nothing but an accounting fiction, enabling the government to continue doing exactly what it would have done if the debt limit were raised.
Remember that the coin is supposed to be deposited at the Fed, which is effectively just a semi-autonomous government agency. As the federal government proper drew on its new Fed account, the Fed would probably respond by selling off some of its $3 trillion balance sheet. In effect, the consolidated federal government, including the Fed, would be financing its operations by selling debt instruments, just as always.
But what if the Fed decided not to shrink its outside balance sheet? Even so, under current conditions it would make no difference — because we’re in a liquidity trap, with market interest rates on short-term federal debt near zero. Under these conditions, issuing short-term debt and just “printing money” (actually, crediting banks with additional reserves that they can convert into paper cash if they choose) are completely equivalent in their effect, so even huge increases in the monetary base (reserves plus cash) aren’t inflationary at all.
Stewart, on Thursday night’s show, balked at the idea of minting the coin and, in the process, reiterated some popular misconceptions, including the idea that the coin would be used to pay the debt, instead of simply to make the interest payment.
Here’s the video:
Ryan Cooper of the Washington Monthly took particular exception with Stewart’s interpretation of the minting of the coin, going so far as to call him lazy and irresponsible:
Stewart, in quite possibly the laziest and most irresponsible segment I’ve ever seen on the Daily Show, doesn’t mention any of that background; in fact he gives a grossly misleading context. “America’s got a bit of a cash flow problem these days,” he says. “We have a 16 trillion dollar debt, our credit rating was downgraded for the first time last year. I think we can all agree it’s time to get serious and figure out a way to restore the world’s respect for the soundness of our currency.” This is just utterly wrong. There is no worry whatsoever in the markets about the soundness of the dollar. Again, demand for U.S. debt is so strong that people are literally paying us to take their money—inflation-adjusted yields for 10-year Treasury bonds are below zero.
Then he quotes a news segment saying “a $1 trillion platinum coin could be minted, and the government could use that to pay the debt.” Again wrong. This is about paying the government’s current financial obligations, not paying down the debt.
Paul Krugman agrees in a short column entitled, “Lazy Jon Stewart,” saying,
Above all, however, what went wrong here is a lack of professionalism on the part of Stewart and his staff. Yes, it’s a comedy show — but the jokes are supposed to be (and usually are) knowing jokes, which are funny and powerful precisely because the Daily Show people have done their homework and understand the real issues better than the alleged leaders spouting nonsense. In this case, however, it’s obvious that nobody at TDS spent even a few minutes researching the topic. It was just yuk-yuk-yuk they’re talking about a trillion-dollar con hahaha.
Despite the finger wagging, the point seems to be moot. The Treasury has stated that it will not mint a $1 trillion coin, as a spokesman said on Saturday:
“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.”
Which of course, puts the ball back in Congress’s court, and something makes me think that even Jon Stewart could teach many Republican Congresspeople lessons in economics. Oh, and, Jon, if you’re reading this (I’m sure you’re not), please, invite Paul Krugman so he can give us all a lesson or two. He claims he hasn’t been invited since 2005. Ouch.
Wendy Gittleson is a seasoned writer, a dog lover and an avid political junkie. She is the Senior Editor for Addicting Info. In her rare down times, you’ll find her somewhere in the mountains or near the beach. Follow her on her Facebook page or on Twitter, @wendygittleson