Monday, January 7, 2013

Krugman: Let's Just Print Funny Money

As the day wears on, Paul Krugman's postss get loopier and loopier. Now he wants to print "moral coupons":
Don’t like the platinum coin option? Here’s a functionally equivalent alternative: have the Treasury sell pieces of paper labeled “moral obligation coupons”, which declare the intention of the government to redeem these coupons at face value in one year.

It should be clearly stated on the coupons that the government has no, repeat no, legal obligation to pay anything at all; you see, they’re not debt, and therefore don’t count against the debt limit. But that shouldn’t keep them from having substantial market value. Consider, for example, the fact that the government has no legal responsibility for guaranteeing the debt of Fannie and Freddie; nonetheless, it is widely believed that there is an implicit guarantee (because there is!), and this is very much reflected in the price of that debt.
But, he does admit it is funny money:
If there is a legal problem even with selling these coupons, there are still alternatives, such as paying suppliers with these coupons and then having the Fed buy them. The mechanics really don’t matter; as long as we’re in a liquidity trap, printing money, printing conventional debt securities, or printing funny money with no legal standing that nonetheless lets the government pay its bills are all equivalent.
If you think about this, what he is saying as that the Fed printing Federal Reserve notes is the equivalent of printing funny money, and he is correct!

Krugman won't go as far as to say that it is just a way for the government to out bid the rest of us for products and services, but that's what it is.


  1. Arthur Krolman, CFAJanuary 7, 2013 at 3:09 PM

    Krugman's clinically insane request:
    "funny money with no legal standing that nonetheless lets the government pay its bills"

    At least he admits that bills from serious people must be paid. If Dr. Rothbard had him on the couch for psychoanalysis, this admission might be a good place to start to bring Krugman around to the conclusion that serious bills must be paid with serious money. Otherwise, California would be doing just fine with their IOU money experiment.

  2. So vendors to the US Federal Govt should all be willing to accept moral obligation coupons that may or may not be paid by the govt in one year? When the US dollar standard has become too restrictive a currency the end is near.

    PS - I REALLY want a trillion dollar coin. For me. Personally. And no I'm not sharing.

  3. By suppliers, can we delay payment to military industrial complex and contractors surrounding DC? See how much Sodexo or Lockheed likes getting paid in "MOCs". It's cool. It's not debt because they have no obligation to pay. I'd love to see someone's auditing department handle that

  4. I supposed they'll be issued on convenient rolls suitable for certain household uses! What would the IRS's reaction be when you paid your taxes with these "Krugman Bucks?"

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  6. Stay on The Krookman, Bob! The emperor has no clothes, and thank you for continuing to shout such out.

    Bizarre, the mental masturbation by the ruling class.