Franck Robichon/Reuters
- The US could mint a platinum coin to solve the debt crisis without worsening inflation, Paul Krugman said.
- The top economist said the inflationary effects of the coin would be offset by the Fed selling bonds.
- "But as I said, people who really should know better constantly get this wrong, and imagine that the coin would be inflationary."
A $1 trillion platinum coin could prevent the US government from defaulting on its debt without making inflation worse, according to Nobel laureate Paul Krugman.
The idea behind the coin is for the Treasury use its authority to mint platinum coins and create one with a face value of $1 trillion that gets deposited at a Federal Reserve account to pay bills while lawmakers remain deadlocked on lifting the debt ceiling.
Some economists have criticized a $1 trillion coin as "unworkable" and an unrealistic solution that could worsen inflation.
"But it wouldn't be that at all," Krugman said in a Twitter thread on Wednesday. "The Fed would surely sterilize any impact on the monetary base by selling off some of its huge portfolio of US debt," he said, suggesting the Fed would likely sell $1 trillion worth of government bonds.
Meanwhile, the projected deadline for the US debt default is ticking closer, with no signs of progress on a deal to lift it. On Monday, Treasury Secretary Janet Yellen said the government could run out of money and trigger an economic crisis as soon as June 1.
For his part, Krugman thinks the government is more likely to issue "premium bonds" to avoid default than mint a $1 trillion coin.
"But as I said, people who really should know better constantly get this wrong, and imagine that the coin would be inflationary," he tweeted.
He also acknowledged claims that Fed Chairman Jerome Powell wouldn't accept a $1 trillion coil or that the Supreme Court would block the issuance of premium bonds.
"But my guess is that nobody wants to be the guy who destroys the world economy," he added.