Obama to pay US debt with trillion-dollar coins?
Posted by Ram Kumar Shrestha on January 5, 2013
With the fiscal cliff averted for now, it’ll be a few weeks until the debt ceiling debate is the next major money issue in Washington. Luckily, some economists say that crisis can be curbed as well, and all it will take is one very valuable coin.
By February, the United States will once again reach its maximum borrowing amount from foreign nations — the debt ceiling — and the House of Representatives and Senate will be stuck deciding if it’s worth raising it once again or rallying for another solution. In recent days, an alternative approach — one that is almost all too perfectly bizarre — has been tossed around. It would involve minting a few trillion dollar platinum coins, and although it’s an unlikely answer, it’s all too legit.
The United States can’t just print paper money all willy-nilly every time it exhausts its borrowing options, but the US can, however, have a figurative field day when it comes to some types of coin.
As analyst Chris Krueger from Guggenheim Securities’ Washington Research Group explains to the American Enterprise Institute, “There are limits on how much paper money the U.S. can circulate and rules that govern coinage on gold, silver and copper. BUT, the Treasury has broad discretion on coins made from platinum.”
“Although the Treasury can’t just create money out of thin air to pay its bills, there is a technicality in the law that says the Treasury has special discretion to create platinum coins of any denomination, and the thinking is that [Secretary of the Treasury] Tim Geithner could make the coin and walk it over to the Federal Reserve and deposit it in the Treasury’s bank account,” adds Joe Weisenthal of Business Insider.
Although the idea seems outrageous, it’s been discussed repeatedly in the media since the start of 2013, and has even been brought up by an influential member of Congress.
“It sounds silly but it’s absolutely legal,” Rep. Jerrold Nadler (D-New York) tells New York Capital this week. “There is specific statutory authority that says that the Federal Reserve can mint any non-gold or -silver coin in any denomination, so all you do is you tell the Federal Reserve to make a platinum coin for one trillion dollars, and then you deposit it in the Treasury account, and you pay your bills.”
More than 1,000 people have already petitioned the Obama administration to order the minting of a coin on the White House’s We the People webpage, and New York Times economist Paul Krugman considered the option himself this week. Of course, doing as much is easier said than done. Designing the actual look of the coin would be up to Congress, and asking the House and the Senate to agree on the face adorning a one-trillion-dollar coin would likely lead to all sorts of Capitol Hill bickering.
Chris Krueger adds to the American Enterprise Institute that this option has a “VERY low probability” of ever happening, and Business Insider’s Weisenthal willingly says it’s a silly route to take, in his own opinion.
“But what’s sillier is a rich nation having a debate on whether it will pay what it owes, which is what the debt ceiling fight is all about. So in the face of such silliness, this unfortunately may be required,” he says.