To avoid the necessity of raising the debt limit, some politicians and commentators on the left have proposed simply having the Treasury issue a trillion dollar platinum coin.
This is not fiction. The idea is far too outlandish for fiction. While fiction often must have an aspect of hyperbole and caricature to make it interesting, the plot still has to be believable. Nobody would believe this if it weren’t actually true.
As the nation approaches another showdown on the debt ceiling, a limit which must be continually increased because of spiraling insolvency, some on Obama’s side of the aisle decided they didn’t like the idea of Republicans having a say on things, and have proposed sidestepping the issue of increasing the debt ceiling by having the US Treasury stamp a trillion dollar platinum coin in lieu of actually borrowing money at the Fed. In other words, instead of pretending that currency has meaning beyond just entries on a ledger, they want to simply stamp a coin to represent what amounts to about 1/16 of the total output of goods and services in the US. Voila! Now we can borrow and spend as much as the Treasury can stamp in platinum coins. We all get rich by the simple expedient of a money press.
In case this is as confusing to you as it first was to me, the Obamaites don’t anticipate the Treasury actually buying a trillion dollars in platinum and stamping coins that represent something real. Instead, they anticipate the Treasury issuing a trillion dollar platinum coin (the metal costs about $1,800/oz, but there is no reason the coin need have anything more than a nominal amount of platinum actually in it) simply because nothing in the law specifically prohibits doing so with platinum, but it does prohibit doing so with gold or silver. In other words, issuing a platinum coin, denominated at any value the Treasury desires, would be printing money from thin air to pay US bills, just as is now done, but without the formality of issuing debt to the Federal Reserve to represent the money thus printed.
But here’s the deal. Money never has bought anything. Goods and services buy things, or, as things are now, mortgages on the future value of goods and services buys things. In the US , about a third of government spending for each of the past four years and counting, has come from mortgages on the future output of goods and services. It’s been over a trillion dollars of debt each year since Obama took office (in sum, over $5 trillion), far and away the highest ever in nominal terms, and the highest since World War Two as a percentage of gross domestic product. This money still represents a claim on the goods and services produced by the US, but in the future. The increased tax revenue required to pay the money back can come from either an increase in the output of goods and services, an increase in the taxes levied against a relatively static level of goods and services, or by issuing scrip (like a trillion dollar platinum coin) whose value is ultimately destroyed by dilution, effectively a default. Guess which option the Treasury is likely to choose when the bill comes due.
There are group of persnickity lawmakers who claim to be concerned that the mountain of debt, which continually grows, is becoming unmanageable. They believe that if the debt continues growing unabated, it will garner disastrous fiscal and economic results. They don’t want to increase the authority to borrow money without some reform of the obligations driving the spending. These are mainly Republican lawmakers, and it is against their compulsion to reform spending obligations, particularly entitlement obligations like Social Security, Disability, Medicare and Medicaid, comprising over two thirds of the government budget, that the trillion dollar coin is directed. The Republican lawmakers are reluctant to keep increasing the borrowing limit without which the government does something to stop, or at least slow down, the hemorraging of money, which, at least for now, is still considered to represent real goods and services, either now or in the future. While it’s questionable these Republicans really care about the crushing levels of debt, and are perhaps more concerned with winning a Washington battle for power, it is clear that the Obamaites, spending for the last four years like drunk sailors on a port call, have no mind to sobering up (and actually, I impugn the integrity of drunk sailors on a port call by comparing them to Obamaites–at least the sailors are paying for their drunkeness out of their own pockets from money they have earned).
So the brilliant ruse of introducing a trillion dollar coin is contemplated to prevent the Republicans from taking away the magically-refreshing punch bowl. But the perceived need for the ruse arises entirely from a legal artifice. The US government will never be unable to pay its bills so long as it borrows in the same fiat currency it prints; in that regard, it should make no difference what its debt ceiling is. And so long as creditors are willing to lend it money on its signature, it won’t need to suffer any sort of crushing austerity, like Greece and Italy and even the U.K. have suffered (the latter of which also prints the currency it borrows in, but knew what might happen to its currency if it didn’t get its fiscal house in order, as the pound long ago lost cache as the international reserve currency). But the fact the US can pay its bills in money it prints, meaning it can devalue said bills at will, might one day prevent it from borrowing money on its good faith and credit. And when that day arrives, all the trillion dollar platinum coins in the world won’t be worth a plug nickel.
But why stop at one trillion? Why aggregate things so inconveniently? Why not simply issue platinum chits in whatever denomination is needed to keep the succoring American piglets satisfied at their federal government teat? Thus a $50 billion platinum chit would immediately go to New York and New Jersey to shut Governor Christie up. No need for pesky lawmakers interfering with the aggregating and doling out of goodies function that has become the sine qua non of the federal government. Just issue platinum. To the survivors in Newtown, the government could send token platinum chits, a million apiece say, just to assuage their grief. The possibilities are limitless.
Except. The folks that lend the US money and sell the US stuff might get a bit jaundice-eyed at the prospect of being paid in platinum, or at least at the reason they are being paid in platinum. If the country is so ungovernable that it must create an artifice to honor its pledge of giving “full faith and credit” to its obligations, how much faith and credit does it really have?