On the weird platinum loophole in the debt ceiling debate
When FDR took us off the gold standard and a new monetary system was drawn up there was a bizarre little loophole tossed into the proceedings. The government cannot just *print* money (despite what people who don't understand the Treasury or FED claim) except in one case: the government can print and issue platinum coins in any denomination it wants.
Will Obama use this crazy loophole to push the debt ceiling fight down the road? If he did, how absolutely crazy would the GOP and Fox News go?
These trillion dollar coins would have one purpose … to be deposited into the Federal Reserve as a payment against the debt of The United States of America, which is currently just over sixteen trillion dollars. By law, The USA can borrow up to a certain limit ($16.4 trillion.) This is known as “The Debt Ceiling”. This is no more complex than understanding how the credit limit on a credit card works – something almost all of us can relate to.
So by depositing the 2 coins, The USA will have paid $2 trillion of it’s debt, and will have no immediate need to worry about reaching its credit limit until late 2014. (As it stands today, The USA will reach its credit limit this coming February.)
According to Yale Law Professor Jack Balkin, there are no laws prohibiting The President from ordering the production of this type of currency (there are legal limitations on the production of other forms of currency.) Economist Joseph Gangon of The Peterson Institute sees nothing economically problematic with this suggested “solution” to America’s debt ceiling problem.
I have no problem admitting my ignorance on many of the nuances and specialty-areas of economics. However, with skepticism as my footing, and with my basic understanding of economics, I see a pretty significant problem.
As far as the USA’s debt is concerned, I see no difference between printing a trillion dollar coin and printing a trillion one-dollar bills. This is called inflation. It makes every dollar in circulation less valuable (the more abundant something is, the less it is worth.)
By contrast, others argue that there is no inflationary effect on this maneuver because the coins would never make it into general circulation. It is effectively a kind of barter trade between 2 government entities (The Fed and The Treasury), albeit an entirely unequal trade. (Would you satisfy two trillion of debt someone owes you in exchange for a pair of platinum coins?) Also, if this were a legitimate way to handle debt satisfaction, why stop at $2 trillion? Why not make one coin and assign it a worth $16 trillion?