In order to help pay off the United States federal government’s debt, an idea is floating around to mint a $1 trillion platinum coin. Although the premise may seem quite absurd – especially to those familiar with inflation’s economic collapse results – there is a bit of support from several writers, Economist Paul Krugman and New York Democratic Congressman Jerrold Nadler.
The argument in favor of such an idea is that the Treasury Secretary can use a loophole (Article 1, Section 8) and mint a platinum coin of any denomination. In this case, a $1 trillion coin would be minted, deposited in the Federal Reserve and would be used under the debt ceiling. Suddenly, the Fed would have $1 trillion of new money on its books.
Proponents – no, not fictitious ones from The Onion – say it would never make it into circulation so it would not be inflationary and the Congress would still be left with the purse strings.
Krugman stated in an op-ed piece that the idea isn’t more ludicrous than the present political situation, adding that the premise is a gimmick but “since the debt ceiling itself is crazy there’s a pretty good case for using whatever gimmicks come to hand.”
Many Americans seem to be in support of the concept as more than 6,000 individuals (at the time of this writing) have petitioned the White House to “direct the United States Mint to make a single platinum trillion dollar coin!” It still needs more than 18,000 signatures by Feb. 2 to garner an official response from the White House.
Despite the rising support, there has been growing opposition, including from Oregon Republican Congressman Greg Walden, who has announced that he will introduce legislation to ban the use of a high value platinum coin to pay the government’s debts.
“Some people are in denial about the need to reduce spending and balance the budget,” said Walden in a press release. “This scheme to mint trillion dollar platinum coins is absurd and dangerous, and would be laughable if the proponents weren’t so serious about it as a solution. I’m introducing a bill to stop it in its tracks.”
He added that he and his wife operated their own small business for more than two decades and when it came time to pay the bills they never considered printing money, but rather decided how to balance the books.
Bloomberg columnist Josh Barro disagrees and feels that such actions must be considered at a time when Washington is engulfed with partisanship and a dysfunctional Congress. He also argues that to avoid inflation fears and market chaos, President Barack Obama could vow to buy back the new currency once the Treasury Department can acquire again. The president could even promise to rescind the coin in exchange to abolish the debt ceiling.
Others have called it downright silly. Former Congressional Budget Office (CBO) director Douglas Holtz-Eakin told Fox News that the new $1 trillion coin is “just a disguised new form of debt.”
“This would say (to the markets) they cannot manage their finances as a nation, they’re down to gimmicky coins,” stated Holtz-Eakin. “It would have all the implications of near-default.”
Nevertheless, media outlets are having some fun with the platinum coin news. MarketWatch published an article asking readers: “Who should be the face of a $1 trillion coin?” Some ideas floating around would be President Obama himself or one of his predecessors. Others have put forth the suggestion of having war heroes, such as Billy Mitchell, the U.S. Army General who fought in World War I.
The Bipartisan Policy Center (BPC) published a report Monday that looks at what might happen if the U.S. government hits the debt ceiling. It also included a note that the U.S. could default between Feb. 15 and Mar. 1, unless a deal is made.
“Our numbers show that we have less time to solve this problem than many realize,” said Steve Bell, the senior director of the Economic Policy Project at BPC. “We estimate that Treasury will exhaust its borrowing authority and no longer have sufficient funds to meet its obligations in full and on time at some point between Feb. 15 and March 1. It will be difficult for Treasury to get beyond the March 1 date in our judgment.”
The U.S. debt officially stands at $16.43 trillion (at the time of this writing), while the debt ceiling is $16.39 trillion. The Treasury has taken measures to buy the federal government some extra time, such as suspending investments of the Thrift Savings Plan G Fund, suspending the investments of the Exchange Stabilization Fund, redeeming a certain number of Civil Service Retirement and Disability Fund securities and Postal Service Retiree Health Benefits Fund securities, suspending the issuance of new State and Local Government Series (SLGS) securities and replacing Treasury securities with debt issued by the Federal Financing Bank.
It was also reported last week that sources close to the situation say Treasury Secretary Timothy Geithner will be leaving Washington by the end of January. White House Chief of Staff Jack Lew is the frontrunner to replace Geithner.