Back in 2011, as a response to the United States debt-ceiling crisis, a theoretical solution was proposed to bypass Congress, increase the nation’s borrowing limit, and essentially pay off the government’s ongoing bills: mint a trillion-dollar coin out of platinum.
You see, Congress spends more than it collects in revenue each year, meaning it consistently has to borrow money just to keep the machinery going and avoid shutdown, recession, or worse. And on the odd occasion, the cost of doing business can run a little high.
According to law, the Treasury Department is limited to how much paper money, gold, silver, and copper coins can be in circulation. In other words, old mate Jerome Powell (16th Chair of the Federal Reserve) can’t simply hit the printers this time around. There are, however, no restrictions regarding the number of platinum coins they can create nor each coin’s value. Essentially, national obligations could be fulfilled without further borrowing.
Now, as the bottom of the government coffers become dangerously visible – to the point it’s on track to run out of money for the necessities come October 18th, by the Treasury’s own admission – the previously theoretical solution of a trillion-dollar coin might soon become a reality during the 11th hour.
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Former director of the US Mint from 1994 to 2000, Philip Diehl, has revealed to Axios the agency isn’t exactly short on platinum coin blanks; and if necessary, the trillion-dollar coin could be created within minutes of an emergency decision, before the stern-looking fellas in suits + sunnies + earpieces helicopters away to make a physical deposit in the US Federal Reserve.
“This could be quickly executed on the existing plaster mould of the Platinum Eagle,” says Phillip Diehl.
“Voila… we’d have bought ourselves the equivalent of a trillion-dollar increase in the debt limit without any impact on inflation.”
Though not everyone is on board with this exit strategy. In a recent interview with CNBC, Treasury Secretary Janet Yellen urged the debt ceiling to be raised without deploying such a concept.
“I’m opposed to it and I don’t believe we should consider it seriously,” says Janet Yellen.
“It’s really a gimmick, and what’s necessary is for Congress to show the world can count on America paying its debts.”
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As the idea of a trillion-dollar coin has been theoretical up until this point, the full extent of its would-be consequences isn’t entirely clear. As explained by The Washington Post:
“A major concern for economists is hyperinflation. Minting the $1 trillion coin would be like creating money out of thin air. When all that new money poofs into existence, the other currency in circulation becomes less valuable. That could hurt consumers, who are already dealing with price inflation.”
“Then there’s the question of what a $1 trillion coin would mean for US monetary and fiscal policy. Monetary policy means making decisions about the money in the economy. That’s mostly left up to the Federal Reserve, which is somewhat insulated from political tinkering. Fiscal policy means making decisions about what the government spends money on. That’s an entirely political process left up to Congress and the president.”
“The $1 trillion coin would completely mix the two. It would have the President use monetary policy (creating new money) to solve a fiscal problem (the government is running out of borrowing capacity). Treasury Secretary Janet Yellen said Tuesday that such a move “compromises the independence of the Fed.””
It’s certainly the most instantaneous answer to the US government’s financial woes. Whether it’ll actually be applied into practice remains to be seen.
