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View Diary: The debt ceiling dance and the trillion dollar coin (218 comments)

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  •  Monetizing the debt (0+ / 0-)

    Investors wonuld be unwilling to lend to the treasury if they believed they'd get paid back with money created just for that purpose.  They'd want higher interest rates to compensate.  This would eat into americans' savings and would actually increase the deficit over time.  The political repercussions as well would be crazy.  It might actually be better to miss an interest payment than to set a precedent of inflating away the debt.

    Make no mistake about it -- this only works by keeping the nominal value of the debt constant but by reducing the value of the currency by about 13%, at minimum.  It solves the issue of the debt ceiling but at a greater cost.  It's a function of seeing the debate as self contained.  If balkin thinks it's constitutionally mandatory to force bondholders to take this haircut rather than a default, which is different from a repudiation, he's crazy.  I'd even suggest coin seignorage is a greater violation of the 14th amendment than missing a coupon payment, by the logic of Perry, which itself dealt with inflating away bonds.

    "This world demands the qualities of youth: not a time of life but a state of mind[.]" -- Robert F. Kennedy

    by Loge on Sun Jul 31, 2011 at 09:03:59 AM PDT

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