In response to:

Reader Questions on the One Trillion Coin Proposal

scott s. Wrote: Jan 09, 2013 3:23 PM
While minting the coin wouldn't be inflationary in itself, presumably the coin would be placed on deposit at the Fed, and Treasury would want to draw against that asset. I don't see any alternative for the Fed other than to increase currency in circulation in response to those drafts. The Fed could sell other assets instead, such as its MBS and Treasury holdings, but that would create problems for managing its other liabilities, namely bank reserves. Either way the result would be inflationary.
Chip. Wrote: Jan 09, 2013 7:02 PM
Yes, inflation would surely be a result, just as printing excess paper currency causes inflation. What this really is is a tradeoff. Everyone's cash savings and the value of their cash goes down, and this wealth is transferred to pay off government debts. Since few people have excess cash as their primary assets, other assets will retain their value, and theoretically, government costs will greatly fall because all debts payments and interest on these debts will be eliminated. But if the banks suddenly have all their cash back, I wonder what they'll do with it.

Several people asked me to comment on the $1 trillion coin proposal endorsed by New York Times columnist and Noble Prize winner Paul Krugman.

I did so yesterday in a satirical post Krugman Supports the $1 Trillion Coin; Why Stop There? I Support the $1 Quadrillion Coin.

In response to the above article, I have received several emails wondering where the money comes from. For example reader Tom writes ...