Could Obama sidestep a debt-ceiling showdown by minting $1 trillion coins?

T

he federal government is going to run up against the $16.4 trillion debt ceiling by February, which could trigger another potentially disastrous battle over raising the limit, like the one that caused such a panic last year. Brad Plumer at The Washington Post proposes a novel way for President Obama to avoid an "economic calamity": "He could always show up at a press conference bearing two shiny platinum coins, worth? $1 trillion apiece." It sounds crazy, but some economists say minting two trillion-dollar coins ? as long as they're made of platinum ? could actually let Obama sidestep another fight with Republicans, who last year used the need to raise the limit as leverage to force spending cuts. According to this theory, Obama could move the coins through the Federal Reserve into Treasury's accounts and ? voila! ? the federal government has enough money to cover its bills for another two years without borrowing any more money, thereby staying safely below the debt ceiling.

Is the platinum coin option really legal? Apparently so. It was originally raised during the 2011 debt-ceiling crisis by Jack Balkin, a law professor at Yale Law School. Under law, he noted, there's a limit to how much paper money the United States can circulate at any one time, and there are rules that limit how many gold, silver and copper coins the Treasury can mint.

But there's no such limit when it comes to platinum coins. It's right there in the U.S. legal code: "The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary's discretion, may prescribe from time to time."

Problem solved, right?

Wrong, says Ed Morrissey at Hot Air. This idea "sounds utterly insane because, well? it is utterly insane." The teensy drawback is that it would "devalue the world's baseline currency by about two trillion dollars." Doing so would stoke inflation. Creating money that wasn't circulating before always does. It also makes a mockery of our government's finances, and if anyone actually lends this government money ? by buying its bonds ? knowing this is how we pay off our obligations, "the joke is on them."

And it's not as if this solution hasn't been tried in the past.? In the 1920s, facing crushing debt and war-reparation obligations, the Weimar Republic in Germany did exactly the same thing: printed money to pay off their obligations. They just didn't do it with cool-looking platinum coins.? It destroyed the savings of the middle class, created massive poverty and a flight from German currency, and set the stage for the takeover by the Nazis a few years later.

Actually, this plan is different, says John Carney at CNBC. This new money wouldn't cause inflation, because it would merely replace the money we otherwise would have conjured up by printing bonds.

The key point here is that the government would not be throwing an extra trillion dollars into the economy. It would, rather, be spending exactly how much it planned to spend anyway. It would not be issuing bonds to cover some of that spending but bond issuance by the Treasury does not do very much (probably nothing at all) to combat inflation anyway. The amount of government issued financial assets remains the same, even though the composition of dollars and Treasury bonds changes.

There could a long-term inflationary problem, I suppose, if the government fell in love with the idea and used platinum coins to finance ever larger deficits. But that seems unlikely. And, in any case, the Fed could step in and use its monetary policy tools to counteract the spendthrift coiners.

Yes! Brilliant, clever, it just might work ? except it's never, ever going to happen, says Kevin Drum at Mother Jones.

It's just too outr?. It's the kind of thing that sounds cute to a blogger tapping away on his laptop, but there's no way an actual president would ever try anything so obviously childish.

Source: http://theweek.com/article/index/237537/could-obama-sidestep-a-debt-ceiling-showdown-by-minting-1-trillion-coins

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