As featured in The Wall Street Journal, Money Magazine, and more!
     

$1 Trillion Platinum Coin: The Next Episode of Reality TV

This article was written by in Economy. 11 comments.


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:

Published or updated January 9, 2013. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

Email Email Print Print
avatar
Points: ♦127,550
Rank: Platinum
About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 11 comments… read them below or add one }

avatar Investor Junkie

Will I be able to buy one from Goldline? This is just a band-aid solution masking the real issue. We spend way too much than what we take in. The only solution is going to a VAT. Though in my opinion is stop the stupid spending!

Reply to this comment

avatar SteveDH

A one trillion dollar coin is indeed silly but eliminating the debt ceiling is not the answer. Even though we mock and criticize the process the requirement to “approve” a higher debt limit does indeed focus some thought on the growing debt and can be used as a trade-off to spending cuts. Not real spending cuts mind you, just those (just as silly) “smaller-increases-savings” that take a decade to realize. Someone must be re-reading some of those GREAT accounting books like “Disconnected”, “Power Failure” and ” The Smartest Guys in the Room” to have come up with this one – sarcasm intended!

Reply to this comment

avatar jim

I think we should mint 3 or 4 coins to make sure we have enough to last a couple years.

Reply to this comment

avatar Ceecee ♦53 (Newbie)

This sounds just completely insane! But it is probably no crazier than some of the stuff that gets through Congress…..it is just cloaked in loftier sounding words(legalese). No wonder people have lost faith.

Reply to this comment

avatar David C

*apologies if this is a double post, received an error the first time I posted this*

“The biggest government expense is debt.” Well, that is certainly not true today, are you sure you didn’t mean to write “The biggest *projected future* government expense is debt” ? (BTW take a peek at page 4 of http://www.gao.gov/assets/660/650466.pdf for the GAO’s take of debt service as a % of GDP which IMHO is more useful than Bowles’ nominal dollar value) Now to your two questions :-)

If the only two choices are go into default or mint the coin, then sure mint the coin. If there is any loss in confidence in the US government’s capacity to… well… govern, then that concern should appear basically regardless of what happens here (mint the coin, issue the debt anyway, default, raise the debt ceiling at the last moment, etc). All of those results are a sign of a dysfunctional government.

I don’t understand your statement here (perhaps you could clarify?): “Keeping in mind the debt ceiling is not about government spending on programs or the budget deficit…”

However to answer the actual question on abolishing the debt limit, IANAL but I’m not sure we could do that: the power to issue debt lies with Congress and not the Executive branch (see Article 1, Section 8 of the Constitution) so there has to be *some* guidance or rules from Congress on the debt issued by our government. As bad as the debt limit can occasionally be (see 2011, and now of course) it is still better than the way we did business before WWI where Congress directly authorized every issue of debt. I realize basically no other country except for Denmark apparently has a debt limit… but then again no other country has the US Constitution either ;-).

Reply to this comment

avatar qixx ♦1,895 (Half-Dollar)

My suggestion would be mint the coin but also require a $1 Trillion cut in spending by 2015 and a balanced budget after that. Deep cuts over the next 2 year to correct the problems then fiscal responsibility.

Reply to this comment

avatar Valerie

Did all of you actually take Krugman’s and Barro’s columns about this SERIOUSLY?! They both said it was a ridiculous idea, but no more insane than anything else Washington was doing about the whole issue!

Obviously, irony IS dead! No one recognizes it when they see it!

Reply to this comment

avatar SteveDH

I think you meant satire rather than irony but it should be noted that when this was brought up at a White House press conference the presidential spokesperson said all ideas would be considered. He included simply invoking the implied power of the 14th amendment to just ignore the ceiling to avoid US debt “falling into to question”.

Inflating your balance sheet it not new – it is a tried and proven method of accounting fraud.

Reply to this comment

avatar lynn ♦155 (Cent)

In true fashion, the government looks for smoke and mirrors to ‘solve’ problems. I do have to hand it to whoever came up with this farce, though. Most government people are not this creative. How about they do what we all have done for years. Stick to a budget and stop the crazy spending. I think they’d find out it works, but it will take some effort.

Reply to this comment

avatar dan

The debt ceiling is an artificial construct, but
the issue is we’re spending more than we make. The way out of this is work, and thriftyness (is that a word?) . if we’re productive and making value, we can pay off the debt and pay less interest. our government is not thrifty with our money.

If Obama wants to be a leader he would say there is at least 1% fat in the budget (oh, wait… budget?). and allow each department/project to reduce by 1% this year. Ask for 1%, and you will hear screams from the folks on government dole.

A lot of our economy is depending on middlemen, lawyers,brokers, bankers, and insurance companies taking money out in ‘fees and premiums’ and little new value is built. This causes all of our dollars to be worth less. if the mint ‘prints’ a trillion dollars. it will reduce the value of our dollars in our bank accts, or under our mattress by that much. Right?

this site
http://www.measuringworth.com/uscompare/relativevalue.php
says if you had $1,000.00 from 1970 In 2011, the relative value ranges from $4,660.00 to $14,500.00. I think this is mostly due to ‘printing’ money.
that’s real money the bankers and government conmen are taking from every american who has cash in their wallet or money in any account.

just my $.02 which is now worth $.008

-disgusted Dan

Reply to this comment

avatar Russelll

Could you explain how this would not increase inflation? Isn’t it adding to the money supply?

Reply to this comment

Leave a Comment

Connect with Facebook

Note: Use your name or a unique handle, not the name of a website or business. No deep links or business URLs are allowed. Spam, including promotional linking to a company website, will be deleted. By submitting your comment you are agreeing to these terms and conditions.

Notify me of followup comments via e-mail. You can also subscribe without commenting.

Previous post:

Next post: