You’ve probably heard talk that a platinum coin worth $1 trillion might be minted as a hedge against the nation defaulting on its debt, but you may not how this arrangement would work.
Paul Krugman EXPLAINS:
As it happens, an obscure legal clause grantsthe secretary of the Treasury the right to mint and issue platinum coins in any quantity or denomination he chooses. Such coins were, of course, intended to be collectors’ items, struck to commemorate special occasions. But the law is the law — and it offers a simple if strange way out of the crisis.
Here’s how it would work: The Treasury would mint a platinum coin with a face value of $1 trillion (or many coins with smaller values; it doesn’t really matter). This coin would immediately be deposited at the Federal Reserve, which would credit the sum to the government’s account. And the government could then write checks against that account, continuing normal operations without issuing new debt.
In case you’re wondering, no, this wouldn’t be an inflationary exercise in printing money. Aside from the fact that printing money isn’t inflationaryunder current conditions, the Fed could and would offset the Treasury’s cash withdrawals by selling other assets or borrowing more from banks, so that in reality the U.S. government as a whole (which includes the Fed) would continue to engage in normal borrowing. Basically, this would just be an accounting trick, but that’s a good thing. The debt ceiling is a case of accounting nonsense gone malignant; using an accounting trick to negate it is entirely appropriate.
But wouldn’t the coin trick be undignified? Yes, it would — but better to look slightly silly than to let a financial and Constitutional crisis explode.
Incidentally, the folks at Fox News seem to think the trillion-dollar coin would have to contain a trillion dollars worth of platinum, which is not the case.
HERE‘s the story:
Fox News ran a graphic that claimed the $1 trillion platinum coinwould weigh “17,773.995 tons” and equal the weight of 89 blue whales or a ballistic submarine missile…
The Fox News graphics designers, and perhaps their producers, clearly believed that the $1 trillion platinum coin would have to be worth $1 trillion in actual platinum.
What Fox News failed to understand is that coins do not necessarily get their worth from the actual metal in the coin. Most coins metal melt values are only a fraction of their actual worth. For example, if one melted down a quarter and tried to sell it they would find that the metal in the quarter is only worth about five cents. The quarter is worth 25 cents because the Treasury Department says it is worth 25 cents, just a $100 bill is worth $100 because of the credit worthiness of the United States, not because of the paper value of the bill.