The Trillion Dollar Coin Trick

All of you know I love random finance trivia. Today I’m going to explain the trillion dollar coin trick people are saying the US government could use to avoid a shutdown.

The US Government cannot just release new money into circulation. That job is controlled by the Federal Reserve. Only Jay Powell can make new money appear out of thin air.

However, manufacturing of physical money that the Fed releases is actually done by the US Government. The Government prints or mints it and gives it to the Fed to then distribute.

The Fed does reimburse the US Government for this work. How much? Well, in the case of bills it’s the actual cost of manufacturing – so just a few cents per bill.

However, the Fed pays the US Government face value for the coins it produces. So if it makes a dime, the Fed pays 10 cents. Which means if the US makes a $1 trillion coin then it would pay $1 trillion. Note this is not a loan this is payment for services rendered so doesn’t add to the deficit.

Please note this is a crappy way to handle things. First, the Fed would have to agree to buy the coin. Second, it gives the impression that the US Government can just spend whatever money it wants which makes the US seem more like a banana republic.

More generally, the debt ceiling is a joke. Congress approves the spending that leads to the deficit and debt. The debt ceiling never stops them from spending money and is just a consequence of its spending. They should just get rid of it.

If they really want to stop debt from growing, they should just pass a balance budget amendment.