Can a Platinum Coin Solve the Debt Ceiling Deadlock?
We are 12 days away from the cash strapped federal government. And Congress is still playing chicken with the debt ceiling. Keep in mind that this is the legal limit on how much the federal government can borrow and if it is not lifted by October 18, the country will not be able to pay its bills. Some economists think they have a way around the congressional deadlock: a trillion dollar coin in platinum. We are not kidding.
The idea for the trillion dollar coin did not come from a Nobel Prize winning economist. It was from Carlos Mucha, an Atlanta lawyer.
“I’ve never studied economics formally in my life,” Mucha said. He used to spend his free time in the comments section of econ blogs – for fun.
During President Barack Obama’s first term, he was particularly drawn to a common thread: what could the Treasury Department do if Congress did not raise the debt ceiling?
“It was like guys on a blog chatting about who’s the best left-handed pitcher ever. It had no real world application, ”he said.
Here’s Mucha’s idea: The Treasury has the power to mint money. But it can only legally print a certain number of dollars. And the coins are denominated according to their composition, like gold, silver, copper.
Mucha spotted a flaw: platinum. A platinum coin could be worth whatever the Treasury wants it to be.
“There’s no reason tomorrow the Treasury Secretary would say you know what, I want to change the denomination to a trillion dollars,” he said.
Then the coin is deposited into the treasury bank account with the Fed, and voila, money to fund the government. Debt ceiling issue resolved.
Legal? Probably. But likely?
“It sounds absurd, but the more you think about it, the brighter it sounds,” said Donald Marron, who was on the Council of Economic Advisers under the administration of George W. Bush.
He said if Congress didn’t raise the debt ceiling, minting platinum coins might be better than other options, like smashing the economy.
“Not paying social security, there are a whole bunch of people they wouldn’t be able to pay,” he said.
There is debate as to whether the coin bet would increase inflation. Marron thinks the Fed could handle it.
But a platinum-based solution won’t exactly inspire confidence in government bonds, said Mark Zandi, an economist at Moody’s.
“If I were a global investor and saw this, I would say it won’t work, it’s not sustainable,” he said.
Zandi also said that interest rates could go up overnight, which could lead to disaster.
So when I asked who should be on the face of a trillion dollar platinum coin, he hesitated.
“I don’t know if I would like to put someone on this piece. I think it would be an ignominious honor, ”he said.
Carlos Mucha, the guy who came up with the idea? He doesn’t want to be there either.