Can $1 trillion platinum coin solve the debt ceiling?

The United States will soon be running into the problem again.  Debt Ceiling at. From mid-October, the government would run out of money to pay salaries. Due to a new bill that was passed earlier this week, that danger is temporary Gone, but otherwise there would have been another option. Namely, the Trillion Dollar Platinum Coin, a platinum coin with a face value of $1 trillion.

This week, the idea of a $1 trillion platinum coin in the media again. Not for the first time, because in 2011 and 2021 people also floated the idea of minting such a coin. U.S. law allows the government to mint unlimited platinum coins and assign a value to them. By creating a platinum coin with an extremely high value, the government can put an accounting profit into its own account.

$1 trillion platinum coin

The plan to mint a coin with a very high face value was already announced in 1992. Proposed by Bo Gritz of the conservative Populist Party. In 2010, lawyer Carlos Mucha described the idea of doing that with a platinum coin. The difference between the cost of production of the coin and its face value, the number on it, could be recorded by the government as seigniorage. By creating a currency with a face value of $1 trillion, the government would once again have enough money to push the debt ceiling forward by a few months.

The concept of the Trillion Dollar Platinum Coin received widespread media coverage at the end of 2012, when the debt ceiling reappeared. Economist Paul Krugman supported the idea, saying it showed that money is nothing more than a social construct. Yet the concept of such a coin also has many opponents. The executive body of the government would thus be steamrolling over the rights and privileges of the legislative body of the government. It would also be disrespectful to taxpayers to circumvent the debt ceiling in this way.

$1 trillion platinum coin to bypass debt ceiling?

Monetary financing?

If the U.S. government sells a $1 trillion platinum coin to the Federal Reserve, that's monetary financing. The government can then use money from the central bank to pay salaries and pay off debts. For most central banks, this is unacceptable, because it can lead to hyperinflation.

In theory, the government can work around this, by taking the same amount out of the market after a while with the issuance of government bonds and buying the platinum coin back from the central bank at a later time. In this way, the government can still try to circumvent the debt ceiling in the future. For example, when Congress cannot reach an agreement on raising the ceiling.

In 2011, the debt ceiling almost caused a crisis, when an agreement was only reached at the very last minute. This caused a lot of turmoil in the financial markets at the time. Gold prices rose to record highs, while US yields skyrocketed. Several credit rating agencies downgraded the credit rating of the U.S. at the time. Of course, the US government wants to avoid a repeat of that scenario at all costs.

This contribution was made from Geotrendlines