The Platinum Coin

The hot topic of the moment is the Platinum Coin. If you haven’t heard of it, it is the idea that President Obama might avoid having to get Congress to raise the debt limit by having the Treasury mint a Platinum Coin with a face value of 1 trillion US Dollars and deposit it at the Fed. The Government could then continue to operate normally without having to legally raise debt.

I don’t like that idea but it’s important to note a few things.

1) This is most likely legal. I’m not a lawyer, but those who I read seem to think so. This is merely a statute with unforeseen circumstances. Congress intended for memorial coins with reasonable values to be minted for collectors and such. Had this come up, I doubt the statute would have passed as is. But using laws against Congress’ intent is not illegal. Judges don’t read minds, they read statutes.

2) This is not inflationary. Well, no more so than fiscal policy usually is. The government would deposit the coin at the Federal Reserve. Most likely, in order to balance its balance sheet, the Federal Reserve would end up selling some Treasuries when the government came in to do withdrawals. In other words, the government would be financing it spending with Treasuries as usual. No difference there.

I am however not a big fan. And it’s not because it is undignified. I am not a big fan because it runs around the debt limit. It effectively means there is no debt limit. Whenever the executive wants to borrow money, it mints a coin, ships it to the Fed which sells Treasuries. It’s dishonest.

Some people justify that by calling the Republican-controlled house terrorists and saying that they are using blackmail. If you believe you are fighting disaster at the end of evil, dishonesty seems justified. But I have a hard time seeing the House as terrorists for refusing to raise the debt ceiling. At least no more than Obama for refusing to raise the debt ceiling if it comes with more spending cuts than he wants. It’s the House’s prerogative to refuse to raise the debt ceiling and Obama’s prerogative to refuse to give them spending cuts. That’s all.

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2 Responses to The Platinum Coin

  1. G Jaxon says:

    You are mistaken in saying the Fed would sell Tbills & Tbonds. In fact, they would have to frantically buy them in order to boost their reserves to accommodate such a deposit. The assets which count as reserves are enumerated in the Federal Reserve Act and do not include collectible coins, or token money.

    • PrometheeFeu says:

      The coin would be legal tender as per 31 USC ยง 5112(h) “The coins issued under this title shall be legal tender as provided in section 5103 of this title.” I can’t find the enumerated list of assets which count as reserves. (if you have a cite, that would be helpful) Does it really not include all forms of legal tender/cash? I would find that very surprising.

      [Updated with clearer cite]

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