A plan is being promoted to get around the national debt ceiling: Have the Treasury mint a one trillion dollar denominated platinum coin. Yahoo explains the scheme this way:
Last week, Treasury Secretary Tim Geithner made it official: Federal borrowing has reached the $16.394 trillion debt ceiling.
Treasury, which runs the government's debt-issuance operation, is busy creating about $200 billion of headroom by employing what it calls "extraordinary measures." That should cover about two months' worth of borrowing.
When the two months expire, Treasury will no longer be able to pay the country's bills -- that is, it won't be able to borrow more money to pay for spending already authorized by Congress.
If Congress does not act to raise the debt ceiling, the U.S. will default on its debts. Not good. But this is where the platinum coin comes in. Normally, the Federal Reserve is charged with issuing currency. But U.S. law, specifically 31 USC § 5112, also grants Treasury permission to "mint and issue platinum bullion coins and proof platinum coins."
This section of law was meant to allow for the printing of commemorative coins and the like. But the Treasury Secretary has the authority to mint these coins in any denomination he or she sees fit.
With a $1 trillion coin in hand, Treasury could deposit the money into Fed accounts, and pay its debts in that manner, instead of relying on bond issuance.
And none of this requires Congressional consent. Talk about an elegant solution.
The White House unsurprisingly hasn't commented on the idea. But Rep. Jerrold Nadler is on board. "I'm being absolutely serious," he told Capital NY. "It sounds silly but it's absolutely legal."
What Yahoo fails to explain is that, once such a coin is deposited with the Fed, the magic act really begins. The Federal Reserve would then issue the Treasury in its account a credit for one trillion dollars from which the Treasury could drawn down Federal Reserve notes, or wire dollars to creditors, to pay its bills. Viloa, money printed out of thin air.
But what is everyone getting excited about here? The Fed creates money out of thin air everyday. In fact, a trillion dollars for the Fed is kind of a "been there done that" event. Since the financial crisis hit in 2008, the Fed's balance sheet has expanded by $2 trillion
Bottom line: It's all magic tricks in one fashion or another. Some just seem a little more insane than others. They are all insane, just the form is different. Printing paper money or minting a trillion dollar platinum coin is all the same, it doesn't increase the productive part of the economy, it just provides the government with more money to bid against you, for the products and services that are available.
BTW: There is already a debate going on as to whose likeness should be stamped on the face of the coin. I suggest the president of Zimbabwe, Robert Mugabe, is the only person that makes sense.
The man is a master at the trillion dollar money print (though he is now a reformed money printer). But, back in the day, pretty much everyone in Zimbabwe was walking around with a hundred trillion Zimbabwe dollars in their pocket, as Mugabe printed and printed more money, and as the country dove deeper and deeper into economic collapse because of the money printing.
The Zimbabwe money printing sent many Zimbabweans into poverty, but it was that money printing that kept Mugabe in some interesting threads.