What the hell is it talking about printing a trillion dollars, 1,1 trillion won coins with our own money? I think it's the gibberish of a slightly tasted (?) person, but it's not. Paul Krugman, a Nobel laureate in economics and one of the most well-known contemporary economists, wrote in a New York Times column on January 3, 2013.
"Now, you're talking about that trillion-dollar coin -- you know, ..... (Emphasis)..... Coin issuance That's a bit tricky. So what? Economically, it's harmless. It could strip the government of itself while preventing an economic catastrophe from unfolding. Of course, what we're hoping is to make it clear that there's a "coin solution" or a similar strategy so that this debt ceiling negotiation can go well. But if it doesn't work out the way you want it to, let's just print his coins."
To understand this column, you need to understand what the US "debt ceiling negotiations" that have been going on in the New York stock market all day after day these days are going on.
What's going on? - U.S. Bankruptcy D-7
U.S. President Joe Biden attended the G7 summit in Japan last week and then canceled all subsequent trips and returned to the United States. This is to finalize the "debt ceiling negotiations" before June 6, when U.S. Treasury Secretary Janet Yellen nailed it by saying, "The U.S. is going bankrupt." Shortly after returning home, I met with House Speaker Kevin McCarthy, a member of the opposition Republican Party, who is the leader of the House of Representatives, the "actual National Assembly" of the United States, on Tuesday afternoon (1rd Korean time).
It was already the third time that the President and the Speaker of the House of Representatives had met on this issue. However, there was no income this time either. Negotiations broke down. Since then, working-level officials from the White House and Congress have been in contact day after day, but no news of the conclusion of the negotiations has yet been heard until 23 July, which is the "D-7 day of the national default."
The New York stock market is slumping a little bit every time the news comes out that it was "in vain today." The value of the Korean won against the dollar also falls again in metallurgy. International ratings agency Fitch initially maintained the U.S. sovereign credit rating at AAA, the highest rating, but placed it on a "negative watchlist," meaning it is looking at the country as a potential problematic country in the future.
It is said that the country can go bankrupt in a few days, but AAA is maintained and is only a "negative observer," a position that cannot be dreamed of except by the United States. However, this is not only because the United States is the United States, but also because it is premised on the experience of the past 26 years, which accepts that the bloody warning about the "possibility of national default" is part of a "weaving and beating go-stop" anyway. (But what if it's the shepherd boy's cry and not the "weaving go-stop"? As we all know, the shepherd boy's flock was eventually eaten by wolves...)
To explain a little more - we need to change the law again
There is an unusual system in the United States. The amount of debt that the government can pay has been nailed down by law. (The only countries in the world that have such a system are the United States and Denmark.) Rather than creating such a system to be used sparingly, as one might guess at once, it was created 100 years ago, after the First World War, to give the government more freedom in managing its finances. Until then, it was a legal mechanism designed to mean "we will only give you a cap, but you can do it at your discretion" for the government's financial management, which had to be approved by Congress in every case. It was long after that the nature of the system of monitoring government activities changed.
The United States is a country that spends more than it earns, including taxes. That's a lot more than you can imagine. Especially after the 1 financial crisis, the U.S. government started spending more and more money, and during the last three years of the pandemic, it literally spent it like water. More than 2008 years ago, in the early 3s, the U.S. government had only about $40 billion in debt (?) As of January, the U.S. government's debt had ballooned to $1980.5 trillion.
At the latest exchange rate, it is worth 1,31 trillion won of our money. It's a sum you can't even guess. If you look at the gradient change in the graph below, you can see at a glance how much money the U.S. government owes after the financial crisis, especially after the COVID outbreak, and how quickly and how much.
There is a ceiling on debt nailed to the law, so how can the debt grow so much? In fact, the U.S. government has never spent money to protect the amount of debt set by law. So how did you do it? The law has been changed. Once the government owes an amount set by the law, Congress changes the law to raise the limit.
This process has been repeated 4 times since the middle of the 4th century. Raising the government's "debt ceiling" or pushing back the deadline for meeting the limit has been repeated virtually year after year. The last time the debt ceiling was raised was in December 820, when the debt limit was reduced to $20.109 trillion (2021,12 trillion won). And the U.S. debt was at that limit again last January! It's over.
One more step - 'time of opposition' .. What if it's a real bankruptcy?
Now it's time to change the law, as we've done over the past 100 times. Congress should either raise the ceiling on the amount of debt the U.S. government can have, or delay the time when the cap must be maintained. But let's just say that the opposition is strong in parliament at that time. The "debt ceiling negotiations" are the perfect (?) negotiations for the opposition to make a fuss about what they are demanding from the government and the ruling party.
Even now, with the presidential election coming up next year, and the opposition party is a Republican Party that aims for "small government," it is also a good opportunity to impress on its supporters its political philosophy and line and highlight the reality of the Democratic government (and the various measures that the Republicans judge to be). This is where the conflict comes into sharp interest in the U.S. government's debt ceiling negotiations, which are repeated almost every year. Now is that time.
Moreover, even if it is not now, it is time to protrude the particularity of colostrum. At a time when there was a debate between the government and the Fed that unprecedented liquidity was one of the causes of inflation fears in decades. For the opposition Republicans, who currently hold the majority in the House of Representatives, it is difficult to raise the debt ceiling by a fine (?) level at a time like this.
Of course, even for the opposition, it is too much of a political burden to really prevent the law from being changed. What will happen if the US government runs out of money without raising the US debt ceiling as it is? The U.S. government reached the legal limit of $31.4 trillion in debt it could owe in January. Since then, the U.S. government has been unable to incur any more debt. It's just that with the money you have, you're pulling out this stone that isn't urgent right now and holding on to the other side. (For example, it has stopped making new investments in funds for government employee retirees and is holding on to deposits from the Fed's Treasury accounts.)
But for the U.S. government, which has more debt than anyone else in the world, the expiration date is constantly coming. Just as ordinary people have to pay back their loans when they are due, the creditor has to return the money to the maturing government bond if the creditor wants it. U.S. Treasury Secretary Janet Yellen said, "We're running out of cash and we're running out of money to give to our creditors!" The date of the nailing was June 1, which was mentioned earlier. (Republicans are also making a gesture of "I don't believe it.")
What if the U.S. government raises its hand, "We don't really have money to pay back!" It is a literal state bankruptcy. The "default situation" that is constantly mentioned could unfold.
Looking at the past - the 'trillion-dollar coin' idea
Of the 109 previous debt ceiling adjustments, the last time it really came close to a "national default" was during the Obama administration in 2011. Brinksmanship negotiations continued until two days before the date of default. (This year, as of May 5.)
At that time, the idea of a trillion dollar coins, mentioned at the outset, was also discussed within the government. There is a platinum commemorative coin issued by the U.S. government. Legally, the Minister of Finance has the right to assign a face value to this commemorative coin at his discretion. The government can't print "real money," or paper money, like the Fed does, but it does have the right to make these coins. So the idea came up with the idea that by order of the Treasury Secretary, we could print a commemorative coin with a face value of $30 trillion, 1,1 trillion won with our own money, and deposit it in the Federal Reserve Bank and ask for that amount of real money—$1 trillion.
Even if the United States does its "tricks" with money to this extent, it will be difficult not to damage the status of the dollar. But there's no immediate reason what's going to happen to the dollar. (If you think about it, there's no justification for the U.S. abandoning the gold standard.) On the contrary, could it have been an occasion to paradoxically confirm the status of the dollar as a reserve currency that will not be smashed no matter what it does (only the dollar index is slowly tilting)?
Anyway, that's why Nobel laureate in economics Paul Krugman, in his characteristic scathing sarcastic column, said, "A trillion dollar coins, that's a trick. But so what? Economically, it's harmless." I'm saying it with a little irony and sincerity. (Paul Krugman wrote this column in early 300, after the most intense debt ceiling negotiations of 1 had passed, and the time for the next negotiation had arrived.)
History & Lessons - 'Shrimp Back' Korea Almost Exploded
In 2011, the $1 trillion coin was never issued. As usual, the Democratic and Republican governments have reached an agreement. In an interview in 2017, former President Obama said, "It's true that it came from within the government, but it was a strange idea." And mentions this 'coin plan'. It's an interview where the winner's relaxation is felt after the situation has been resolved. (The 2011 U.S. debt ceiling negotiations could be seen as a long-term defeat in which former President Obama, who had a knack for rejecting traditional political negotiations and pushing them, won re-election the following year, and the Tea Party, a hard-liner Republican Party who panicked, "Well, the government should appease us by now," was wiped out the following year.)
However, as the confrontation continued until the last minute, the ratings agency Standard & Poor's downgraded the U.S. credit rating from AAA, the highest rating, to AA+. The exact timing of the relegation was shortly after the debt ceiling deal was concluded, but the tension exposed to the conflict that was acute until the last minute had an impact.
Since then, the Dow and S&P on the New York Stock Exchange have plummeted by 16~18%. It's no one else's business. The KOSPI fell by a whopping 27%. Such was the stir in the markets caused by the political quarrel that caused the danger of U.S. default to be mentioned at an unprecedented level. After that, the United States maintained abundant liquidity in the market, and problems such as the stock market crash were soon resolved, but Korea, which cannot work its magic to print money whenever it is in trouble, like the United States, a reserve currency country, had to falter for a while.
(The rest of the story is from the soup)