Political theatrics doesn’t stop. I’ve been ignoring the latest issue for as long as possible, but this is so ridiculous I couldn’t go on ignoring it.
Now that pundits have stopped talking about the fiscal cliff, the discussion has turned to the debt ceiling, the artificial limit Congress has put on spending that they have already approved. It’s more reality television-inspired political drama, where the outcome is mostly guaranteed, it’s just a question of who is going to make the biggest fool of themselves before the big season finale.
And what seems to be the foolish solution to the latest cause for tension between Democrats and Republicans has been out in the open, and has even had a Twitter hashtag dedicated to its promotion: The Department of the Treasury should order the U.S. Mint to produce a $1 trillion platinum coin.
The Mint would then deposit the coin at the Federal Reserve, and the government’s books would see a balance increase of $1 trillion, enough to push the debt ceiling discussion back by ten months, according to analysts. The coin would never affect the money supply, and wouldn’t cause runaway inflation, if the coin were to exist only temporarily and would be covered later by issuing bonds as part of the normal economic operations.
With other coins produced by the Mint, like those composed of gold or silver, or standard coins for circulation, the Mint must require a specified amount of metal. A $1 silver bullion round (a more technical name for the coins minted by the government that are held by investors for their value, not by collectors) contains about one ounce of silver. At today’s prices, that one ounce is worth about $30. Dealers sell the bullion for about $35, not for the $1 face value. The government needs to find $30 worth of silver to make each $1 silver coin.
That’s not the case with platinum. The law that allowed the Mint to begin minting coins made of platinum gave the Secretary of the Treasury authority to decide how much metal can go into these new coins. The one-ounce platinum coin currently produced by the Mint for collectors has a face value of $100 and dealers sell it to investors for about $1,750. Using the same formula, a $1 trillion platinum coin would need to contain 10 billion ounces of metal, but that ratio is irrelevant due to the way the law is written. By the law, the Mint can use two ounces — or half an ounce — of platinum, and call it a $1 trillion coin.
They could even call it a $1 duovigintillion ($1 followed by 69 zeroes) coin if they really wanted to solve the debt ceiling crisis for longer.
This is why the idea of minting a $1 trillion platinum coin is ridiculous. Not because it would create runaway inflation, which it wouldn’t. It draws attention to the nebulous concept of money. If it’s so easy to mint a coin of any denomination to increase the government’s balance without using the amount of metal that would be valued the same as the coin’s face value, and use that coin to boost the government’s books, why bother with the symbolism of minting the coin in the first place? If it’s to have actual collateral, what is the point of having collateral that could be valued at whatever the Secretary of the Treasury says it is?
The suggestion to mint a $1 trillion coin also draws attention to the fact that over the last century, the country’s borrowing, which helped enable substantial economic growth, is impossible to pay for without more revenue. This is not about today’s spending. This is not going to be fixed by cutting back government programs. The biggest government expense is debt. Investors have always lent and will continue to lend money to the United States, and the government must pay that money back. By 2020, the government will spend $1 trillion a year on debt repayment alone according to Erskine Bowles, the co-chair of President Obama’s debt-reduction task force.
Discussion of this platinum coin also reminds people that the value of money is in our faith that it has value, not any kind of intrinsic value. The same would be true if the dollar were still on the gold standard, or even if gold or silver were the only legal forms of money. There is no such thing as intrinsic value — the value of anything, whether money or otherwise, is defined by what it can be traded for. Our faith — as consumers and investors — in the government’s relative stability has been good enough to prevent the dollar from crashing in value.
But if the world sees the implementation of the $1 trillion platinum coin idea as a farce — more farcical than the concept of value sustained by faith — then the country would face not just image issues but negative financial consequences. Investors could decide that United States politicians have finally lost their ability to govern with reason and sense, and could stop lending us money. That could still be less damaging than the fallout after the federal government hits the debt ceiling and stops paying back debt, losing the country’s already tenuous credit rating.
The good news, I suppose, is that the alternatives for investors — other countries’ currencies — aren’t so attractive, either.
Do you think the Secretary of the Treasury should move forward with the plan to mint a $1 trillion platinum coin if a deal to raise the debt ceiling isn’t reached quickly? Keeping in mind the debt ceiling is not about government spending on programs or the budget deficit, should the government eliminate the debt ceiling entirely, since it is just a symbolic and we can’t really do anything about the debt the country already has?
For further reading, though I don’t agree with everything stated within these articles:
- Josh Barro, Bloomberg
- Heidi Moore, The Guardian
- Philip Diehl, former head of the U.S. Mint
- Matthew Yglesias, Slate
- Paul Krugman, New York Times
- Joe Wiesenthal, Business Insider