We Could Mint a Platinum Coin to Deal with the Debt Ceiling

While Congress has kicked the debt ceiling can down the road for a couple of months, it will be back (the debt ceiling is the maximum amount of money that the United States can borrow cumulatively by issuing bonds). And next time, if Republicans decide to be dicks about the debt ceiling–that is, threaten global financial collapse– Bden should do an end run about them and mint a trillion dollar coin.

While that sounds crazy, in an interview with Rohan Grey, Philip Diehl, former Director of the United States Mint under President Bill Clinton from 1994 to 2000, describes how this would work (boldface mine):

Grey: But not only that, there’s actually been instruments that the Federal Reserve issues – interest earning term deposits, which they started issuing in 2009 – that pay interest, are a legal obligation of the government, but are not included in the debt ceiling. And so there’s a lot of instruments out there – including the Greenbacks that Lincoln authorized, that are still legal on the books at the Bureau of Engraving and Printing – that are not included in the debt ceiling. We could call them debt, we could call them a means of financing, but they are no “Debt Subject to Limit” in the same way. And this coin would be very clearly in that category, not in the category of debt subject to the debt ceiling, because that’s a very narrow category. And that’s sort of one of the other confusions. People say, “oh well this is basically violating the spirit of the debt ceiling law.” Well, no more than issuing a quarter is, right?

Diehl: Yes, that’s exactly right.

Grey: And you mentioned, you know, that this was a sort of bullion coin program initially. And I think this is one other confusion – we were just talking about this earlier – people often think, well, bullion coins have to represent the underlying metal value and nothing more. And the reality – correct me if I’m wrong – is that a lot of bullion coins are sold, you know, over their face value because the metal is more expensive.

But there’s nothing that says the face value couldn’t be more than the metal, and we certainly aren’t on a gold standard, or a metal standard in general. And it’s the face value of the coin that matters. In fact, I pulled up a couple of statutes – 31 U.S.C. § 5112(q)(4), which concerns the sale of $50 denominated gold bullion coins, says that the bullion coins shall be sold for an amount the Secretary determines to be appropriate, but not less than the sum of the market value of the bullion, and the cost of designing the coins, including labor, materials, machinery, et cetera.

So even with regular bullion coins – and there’s another one for § 5112(o)(4)(A), which governs the sale of $10 denominated commemorative gold coins, that says that bullion coins shall be sold at a price that is equal to or greater than the sum of the face value and the cost of designing the coins. So even when we think of bullion coins, we’re not thinking of something that can only ever be the value of the metal. That might be a floor, but it’s not necessarily a ceiling. Does that sound correct to you?

Diehl: Yes, that’s exactly right. And it’s only by practice, and sort of practicality, that the U.S. Mint sells bullion coins at a small premium over the spot price of gold, that represents those costs of production, of marketing, sales, and all that. And that’s because the purpose of the coin is to compete in marketplace with other bullion coins. And so those sorts of price constraints apply because of the intent, and the intent of the product, and the circumstances in which the product enters the marketplace. None of that applies to a trillion dollar coin. Its purpose is very different. And so it wouldn’t make sense for it to follow that model, because it is so different.

The other thing that’s important is there is no language in that provision of law that authorizes the platinum coin that says anything about pricing.

Grey: That’s right – other than that the Treasury Secretary has absolute discretion, right?

Diehl: Yes, yes. So the restraints that are in the statute, that apply to gold and silver bullion coins, aren’t there for platinum.

Grey: And I believe it was Harvard Law Professor Lawrence Tribe that talked about this. He said, you know, if you look at all the other statutes, and they have constraints. And then you look at one that doesn’t. And it was intentionally written to not have the same constraints as the others. Then you have to take that seriously as a matter of statutory interpretation. You can’t say, “oh, they meant it to have similar constraints, they just forgot.” You wrote it! You didn’t forget. You made it.

Diehl: [Chuckling] Yeah, no, it’s a feature not a bug.

But what about TEH INFLATIONZ?!?! Well…

Diehl: …But the key to this – and to address another knock that we hear that is fallacious on the coin – the key is that the coin does not, and of course, can not go into circulation. It has no impact on the money supply. And that is the rap, is that all of a sudden, it’s going to be like Venezuela. All of a sudden, you’re increasing the money supply by a trillion dollars, and you’re going to have all of these disasters and consequences. You know, it never goes into commerce. It’s not like other coins, or currency, or QE [Quantitative Easing] for that matter, in which money is being inserted into the economy. This coin is produced at the United States Mint, goes to the Federal Reserve, stays in a vault. There will be, when sanity prevails and the debt limit is increased, that trillion dollar coin can come back to the U.S. Mint, just like any other coin. That seigniorage is taken off the books, and the coin is destroyed.

Grey: Right. The only spending that would happen is the spending that Congress has already said needs to happen, that should be happening anyway, and in fact is constitutionally required under the Fourteenth Amendment.

It’s a silly thing to do, but the debt ceiling–and using it as a hostage is equally ridiculous–so MINT THE COIN!

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