$1 trillion Platinum Coin (Marginal Revolution)

$1 trillion Platinum Coin (Marginal Revolution)

Several economists/pundits have offered a creative solution to any debt ceiling fight- have the Treasury mint a $1 trillion platinum coin to be deposited at the Fed. As pointed out by many, including Paul Krugman, the Treasury has a legal loophole to mint any denomination of platinum coin for commemorative occasions (the same is not true for other metals). Depositing the coin at the Fed would have the same effective result of raising the debt ceiling through expanding the Fed’s balance sheet.

Marginal Revolution’s Tyler Cowen argues that, although it may actually work from an economic perspective, there could be legal obstacles to the platinum coin scheme. These legal obstacles would then generate significant uncertainty with real effects on the market.

Another reason not to mint the coin, beyond legal challenges, is the potentially dangerous precedent it would set. The platinum coin would basically grant new printing powers to the President and could theoretically undermine the important, independent power of the Fed to control the money supply. Given the circumstances and potential downgrade (although the last one had little impact on treasury yields), it may seem the expedient and appropriate path but the long-term risk associated with such a policy and corresponding expansion of Executive power has not been fully examined.

Comments

  1. Not a lawyer, but seems like pretty clear textual authorization to me. As far as expanding executive power, maybe, but the President is still just spending only what Congress has already appropriated. The net effect on the money supply would actually be negative since the private sector would lose the interest income it would have received had the spending been accompanied by normal debt issuance.

    It could certainly cause market uncertainty due to perceived (but inaccurate) inflationary consequences. I imagine there would be plenty of flagellating on ZeroHedge and gold funds talking up their books. But it would definitely not be worse for the market than the threat of Congress refusing to honor their obligations and voluntarily defaulting on debt payments.

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