There’s been lots of discussion lately regarding the minting of a “trillion dollar platinum coin.” The scheme was first promoted by Krugman less than a week ago, and has been discussed heavily the last few days — with “progressive” statists diligently supporting the cause.

Yesterday, Paul Krugman noted:

Should President Obama be willing to print a one trillion dollar platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous.

So, Krugman is in support of minting a platinum coin and declaring its value a trillion dollars. And why wouldn’t he be? This is not, functionally, any different than what the Fed and Treasury do now. The Fed creates “money” as simply as typing on a keyboard.

Philip Diehl, “the former Mint director and Treasury chief of staff who, with Rep. Mike Castle, wrote the platinum coin law and oversaw the minting of the first coin authorised by the law,” explains how money can be simply divined out of thin air:

The accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books one trillion dollars, and transfers one trillion dollars to the Treasury’s general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar.

Indeed: the same applies to all fiat currency. Therein lies the problem.

But back to Krugman: as is customary with him, it is a game of partisan politics. His opponents are, naturally, evil dolts who wish to see the world burn for their own selfish profits (in that very piece he calls them “ruthless” and “crazy”). In truth, this is a charade he must maintain so that people don’t catch on to how much the two major parties actually have in common. The alternatives are default and inflation, as he notes. But in truth, by paying debtors with money valued less than what was borrowed, inflation is merely a slower form of default. So Krugman makes a distinction without much difference.

What Krugman is peddling here — what he’s pretty much always peddling, to be honest — is magic:

Enter the platinum coin. There’s a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector’s items — but that’s not what the letter of the law says. And by minting a one trillion dollar 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.

Here, again, is Diehl:

Once the debt limit is raised, the Fed could ship the coin back to the Mint where the accounting treatment would be reversed and the coin melted. The coin would never be “issued” or circulated and bonds would not be needed to back the coin.

So it’s like the coin never happened! It’s all make-believe money… so what, then, are the debtors “receiving”?

Diehl, too, believes in the magic of this make-believe money:

There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit.

This is magical thinking, and like Tinkerbell and Santa Claus, they need you to believe for the pixie dust and reindeer to take flight. How can such activity do “no economic harm at all” or have “no negative macroeconomic effects”? If I paid a debtor back with pennies on the dollar, would he feel no economic effects? Would our future economic activity not be harmed?

And if this works “just like additional tax revenue or borrowing,” then why must there be any taxes or borrowing at all? Why not just mint trillion dollar coins ad infinitum? And why not mint a quadrillion dollar coin and profit? And why don’t we all do this? If there are truly no negative economic consequences to simply declaring something with little value as having higher value and paying debts with this “money,” then why aren’t all homes installed with counterfeiting machines as a means to economic prosperity?

Explaining this magic Keynesian thinking, Krugman actually puts his foot in his mouth a bit:

It’s true that printing money isn’t at all inflationary under current conditions — that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public.

For starters, he’s using the modern lie that monetary expansion is not inflation. As I have frequently noted: this is a purposeful shift in definition to obscure the cause (monetary policy) from the consequence (price increases): “By divorcing the word from its literal origins, [central planning apologists] cloud the direct effect between money printing and the value of money. This is not unlike suddenly using the word dog to instead refer to dog piss.”

But here he admits a couple of things he doesn’t tend to. Notably, he states that printing money does cause price inflation, just not “under current conditions.” Of course, he has a long track record of always finding ways to make “current conditions,” whatever those may be at the time, just right for printing money. Still, he’s exposed himself. Furthermore, he concludes that this process of turning government debt into “debt held by the public” as “doing no economic harm at all.” I wonder: if my student loan debt eventually turned into debt held by Krugman, whether he would conclude that it did him any economic harm.

In any case, let’s understand, specifically, this trillion dollar coin a little bit and why it is completely laughable.

First, let’s assume that it is a full one ounce platinum coin. Currently, such a coin has a spot price of approximately one thousand five hundred dollars (and is actually one hundred dollars less than a gold coin — but a gold coin doesn’t sound as impressive, does it?). So what is this coin’s true market value relative to the fiat value that Krugman and his cronies wish to “impart” on it?

One thousand five hundred dollars out of a one trillion is 0.00000015 percent. That’s three-two-billionths of a percent.

Most people have a hard time conceptualising very large numbers, myself included, so let’s think of it another way. That is approximately the same relationship between one M&M and four hundred thousand five pound bags of M&Ms. Imagine eating ten pounds worth of M&Ms every single day (that’s a hundred ”servings” a day) for five hundred fifty years. That’s eating thirty-five M&Ms every single minute of every single day of every single month of every single year, without sleep, for nearly eight lifetimes. Now contemplate the value of a single M&M in that context. That’s the same relationship one penny has with the combined values of twenty ten million dollar mansions.

Its value is negligible. It is, essentially, zero.

So using a platinum coin is merely ceremonial. It is a way to give something the appearance of value since, again, most people have a hard time conceptualizing very large numbers.

In truth, the platinum coin has basically the same value, relative to a trillion dollars, as Monopoly money.

But if Monopoly money were used, then people might soon realise that the Federal Reserve notes in their wallets are hardly any different (as Diehl admitted: it is the same “accounting treatment”) — and as such people may begin to question the legitimacy of the entire Keynesian/monetarist enterprise.

And we can’t have people learning the truth, now, can we?