The $1 Trillion Coin Solution to the Budget Problems
Posted by Adam King on January 09, 2013
A Democratic congressman, a Nobel-winning economist and several prominent writers are now floating the idea that the Treasury Department should use obscure powers to mint a $1 trillion coin. The coin, minted if Congress will not permit an increase in the debt ceiling, could then be used to pay America’s debts, according to pundits.
Rep. Jerrold Nadler, a Democrat from New York, has told Capital New York that the out of the ordinary idea could actually work. Though he conceded the idea sounded silly, he added it’s absolutely legal.
A tiny section of the U.S. code, pointed to by Nadler and others, allows the Treasury secretary to mint and issue platinum bullion coins and proof platinum coins of a size and denomination of the secretary’s discretion. The section of the code is mainly considered for commemorative coins, but the notion the provision could be exploited as an ace-up-the-sleeve for the administration was first explored during the 2011 debates about the debt ceiling.
A White House petition for the trillion-dollar coin has garnered more than 4,500 signatures.
The petition reads that while the idea may seem like an unnecessarily extreme measure, it is no more absurd than playing political football with the U.S.—and global—economy at stake.
Paul Krugman, a noted economist, called it a gimmick, but also wrote that since the debt ceiling itself is crazy there’s a pretty good case for using whatever gimmicks come to hand.
There are troublesome concerns with such an endeavor, no matter how unlikely it is to proceed. For instance, a Treasury secretary with the notion of minting coins of any denomination could be a very serious influence on markets and could rapidly stir inflation.
Economists and pundits are tossing this football around in their own rite, with Bloomberg’s Josh Barro saying the President could avert inflation by pledging to buy back the new currency as soon as the Treasury Department can borrow again.
Joe Weisenthal of Business Insider believes the coins wouldn’t cause massive inflation anyway because there would not be a gigantic injection of new money, just money previously allocated by Congress.
Congressional Budget Office director Douglas Holtz-Eakin, however, said it’s just a disguised new form of debt. He added this would say to the markets they cannot manage their finances as a nation, they’re down to gimmicky coins. He also said it would have all the implications of a near-default.
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