Armageddon-style battles over raising the debt ceiling are becoming an annual tradition here in Washington. The latest iteration, fresh on the heels of the near-miss on the “fiscal cliff,” promises to once again call the effectiveness and creditworthiness of the United States government into doubt. At a time when financial markets seem to be responding to government decisions as much as economic realities, this is hardly welcome, and it appears likely that Congress will once again kick the can down the road, making a temporary deal in order to fight the battle again in a year or so.
But never fear! An obscure legal loophole might allow the debt limit problem to be solved once and for all.
The Treasury’s ability to create new money is subject to a number of restrictions, including on the denominations of coins. Except, that is, platinum coins. Platinum isn’t normally found in American change—you’re more likely to encounter it in your car’s catalytic converter than in your pocket—but the U.S. Mint occasionally produces commemorative coins in a range of metals. In theory, then, President Obama would be acting within his legal powers if he ordered the production of a platinum coin valued at one trillion dollars, or at any other amount he chose. This coin could then be deposited at the Federal Reserve, allowing new debt to be issued against its value. Debt crisis averted!
The idea has been repeatedly plugged by Nobel Prize-winning economist Paul Krugman on his New York Times blog, where he argues minting the coin won’t be economically harmful because the economy is in a liquidity trap, that is, people are hoarding cash, preventing government cash infusions from driving interest rates or growth up. I won’t pretend I have standing to debate a Nobel winner (though the field of economics is bitterly divided on many points, including this one). However, economic harm is not the only thing worth considering when discussing the coin option. The Constitution grants Congress, not the president, the ability to borrow money, to coin it, and to regulate its value. The minting of a coin worth nearly a tenth of the money supply would thus be a serious infringement of Congressional power. Couldn’t a president use platinum coins to radically loosen the legislature’s grip on the purse strings, completely bypassing it when borrowing new money?
Our current president has not shown a taste for absurd theatrics, so it’s a bit hard to believe that he would take Krugman’s advice and stamp a coin with a dozen zeros. But if he did, it would only continue the dangerous, decades-long trend of the executive branch taking more and more power from Congress.