My Two Cents On The Platinum Coin (Yeah, I Went There)

With the Fiscal Cliff no longer an issue, the next scheduled disaster from our elected leaders is apparently yet another Debt Ceiling vote needed to ensure the Federal government can pay out those Medicare checks, military pay, and basically keeping the street lights on.

There's a good argument to be made that we don't even NEED a Debt Ceiling vote, the whole thing can be done through other budgetary bills and never be an issue: but sad to say the powers that be in Congress don't want to give up their ability to be bratty monsters to their fellow Americans, and also they've realized they can use this man-made disaster to wriggle out some twisted deals making the rest of us suffer in the process.

Considering how broken the system is, we've got a ton of people thinking outside of the box, using some lateral thinking.  And one idea that's come up - it actually started brewing last year when the government shutdown over the last Debt Ceiling vote happened - is the fact that under current law the Treasury Department can cast a platinum coin, give it any value they deem fit, and then use that coin as revenue to be spent however the government needs.  The actual value of platinum as a metal isn't at stake - this is called Seigniorage - all that matters is what value the Treasury Secretary can put on that coin.  As a result, the Secretary could stamp it as a One-Trillion-Dollar (that's 1,000,000,000,000.00 if you wanna count out the zeroes) Coin and that coin, probably no bigger than an Eisenhower Silver Dollar, will be worth that one trillion.

A law originally designed to allow the government to make and sell commemorative coins to a collectibles industry to turn a modest profit could be used to tell Congress to go screw itself over the Debt Ceiling nonsense:

As former Congressman and author of the original bill Mike Castle told Dylan Matthews of the Washington Post, the intent was to use the government's seigniorage power to very modestly reduce the deficit. Seigniorage is the delightfully literal concept of making money by making money. It's the difference between the cost of creating currency, and the value you assign to that currency -- in other words, the "profit" governments get from minting money. The trillion-dollar coin is seigniorage just like commemorative coins are seigniorage -- well, except that the trillion-dollar coin is a whole, whole lot more of it. Even if you don't find this terribly convincing, it doesn't really matter. The plain text of the law, not its intent, is what matters. And that means the trillion-dollar coin is almost certainly legal.

To be fair, our debt obligations aren't as high as one trillion: it's roughly about 52 billion.  A more modest plan would be to mint more than 52 platinum coins at One-Billion each and save the One-Trillion coinage for a more special occasion.

That persons among the Obama administration are talking seriously about this of course has the Far Right in an tizzy.  Most of them don't even realize the concept of seigniorage and are trying to mock the Platinum Coin proponents by thinking one trillion worth of platinum has to be cast for the world's largest coin.  The truth is much simpler: the coin can be the size of a DIME (our smallest coinage) and as long it's made out of platinum it can get valued however high it can, meaning it CAN be a One-Trillion Coin.

This may look on its face like a silly solution.  But the reason we're even thinking of this as a legitimate possibility is due to the fact that Congress is broken.  Full-on partisanship rules the floor, and the House Republicans have convinced themselves to never retreat on any issue that would give Obama a good day.  Especially if they can use their hostage-taking on the Debt Ceiling vote to force harsh social spending cuts on the Democrats.  There is no reason to believe that the House GOP will negotiate in good faith to resolve the matter, and we'll be facing yet another showdown just like in 2011 that crimped the nation's bond rating and caused enough financial chaos to choke a bull.

To consider Matthew O'Brien's thoughts:

As my colleague Derek Thompson explains, a world without a debt limit increase is a world where the government has to stop paying 40 percent of its bills overnight. Everything from food stamps to defense spending to maybe even Social Security benefits would go unpaid. Now, Congress would presumably relent after a few weeks of this, but if it didn't, the economic damage would be mind-blowing...

And that brings us to the trillion dollar coin. If you haven't heard, there's a law that technically lets the Treasury mint platinum, and only platinum, coins in whatever denomination it chooses. It's legal, it's doubtful anybody would have standing to challenge it in court, and it would let us keep paying our bills, without setting off massive inflation, if the debt ceiling isn't raised. But as Ross Douthat and Ezra Klein point out, the politics of it are toxic. It sounds crazy, and it would look like a crazy power grab, all of which would empower the very Republicans pushing us towards a possible default. Risking complete catastrophe is worth it if it will break the swamp fever according to this logic. That very well could be true if we were talking about a run-of-the-mill catastrophe, but it falls apart when we're talking about a debt default. The financial fallout and increase in our long-term borrowing costs are much too high a price to pay for discrediting the default caucus. Here's the way out. If Congress doesn't lift the debt ceiling in time, Treasury should prioritize payments while Obama and Republicans negotiate an increase. But if a day ever comes when incoming revenues won't meet interest payments, Treasury should mint a platinum coin to cover the difference. As Steve Waldman argued, use a billion dollar instead of a trillion dollar coin -- and only as a last resort to avoid irrevocable damage.

The full faith and credit is worth a platinum coin.

 

Personally, I kinda find this One-Trillion Coin idea amusing, a creative solution to a bankrupt problem.  But I'm kinda also with O'Brien here: I don't think we should be jumping straight at the platinum coin as the immediate solution.  The real problem is that we've got a Republican base pushing for a default (remember Grover Norquist, kids?  He wants to drown your government in his bathtub) no matter the hazards.  Going to the coin solution isn't going to solve the way Congress does business.  Congress needs serious fixing, especially considering how much of a sick joke the Debt Ceiling really is.

 

Get rid of the Debt Ceiling.  That's the real solution.  The pity of it is, that also takes real political courage right now, and NO ONE has that.