I subscribe more to neo-liberalism than conservatism; and here is one place in ideology where my divergence from conservatives is striking. I like the idea of the platinum coin minted by the Treasury with a trillion dollars face value, just not the purpose for which it is proposed.
I like the idea because when we have a situation where the Fed is resistant to doing what is best for the economy as it currently is with inflation targeting, the Treasury can and should do something about it. Some might look at that and say it would amount to nothing but chaos; or that with the Fed targeting inflation, it would be of no help as the Fed would just tighten policy as the Treasury tries to expand it. The latter could end up as the case, but with unlimited ability to coin trillion-dollar coins, I think there might be some balance achieved in dueling policy and the economy might be better off than being solely at the mercy of inflation nutters at the Fed who are quite content with plunging NGDP.
On the other hand, I don’t care much for the proposed purpose of bailing government out of a tight financial situation. It is really just a dressed up version of default. If we are going to default, I would prefer that we get it over and done with; and do it in a more organized and legal way than leveraging a loophole in commemorative coinage laws in the midst of a debt ceiling fight. It is preferable to do it in a more organized fashion because we do not want it to become a standard operating procedure for government to be as big as it wishes and pay for it with coins that have a hyper-inflated value. That could not go on forever or even very long before we become Zimbabwe – banana republic kind of stuff. If we are going to default, it would be better to have the Fed buy up some portion of existing debt and then wipe it out over time, killing two birds with one stone as it uses the process to close the NGDP gap.
In addition to using the Fed in a more appropriate way to handle debt issues, something would have to be done about the spending in order to not transform our economy into something out of the third world which would be far more harmful in the long run than the current situation.
Speaking of the current situation, there are likely even better ways of dealing with issues of public debt than just putting Band-Aids on the problem as the trillion dollar coin or using the Fed for orderly default would. One of them would be to amend the Humphrey-Hawkins amendments to the Federal Reserve Act to remove discretionary monetary policy and implement a rules based policy management process, preferably based on nominal stability. It should also include some kind of accountability mechanism that provides sanctions for failure. And it should demand that the Fed resolve any outstanding nominal stability issues, including those stemming from the 2008 financial crisis before normalizing policy.
This approach would be a much better way to deal with debt issues because most of the current situation is a direct result of discretionary monetary policy tightening during an oil price shock that caused an ultra-tight money environment, plunging income expectations, a financial crisis and prolonged economic distress after most governmental spending choices had been made – all in the name of ultra-low inflation with bygones being bygones. The burden of debt has been exacerbated by lack of nominal stability in addition to the accompanying explosion in social spending required by the depth and duration of the resulting economic distress.
Anything else is just a quick patch, kicking the can down the road hoping something will change and things will get better all on their own. It won’t work this time because nothing will get better on its own. The same problems will just keep coming back until we have real legislative reform of the Federal Reserve.