For those not paying attention, one idea gathering steam lately (in econ blogosphere land) is to have the Treasury mint a $1 trillion platinum coin in order to evade the pending debt ceiling showdown.
The basics go something like this: under the law, the Treasury is able to mint commemorative platinum coins without any restrictions as to face value. Thus, those of a more donkey-like persuasion see a potential loophole – get the Treasury to issue a coin with face value of $1 trillion, deposit it with the Fed, and the Bernank can gin up some new dollars and no additional debt needs to be issued. Thereby, Obama and team can avoid Republican efforts at re-visiting the debt ceiling episode from a couple years back.
In particular, Paul Krugman has really gotten on-board with the idea (here, here, here and here), most recently linking to an article where esteemed Harvard law professor Laurence Tribe weighs in on the absolute legality of the plan.
But, it seems that Professor Tribe is glossing over some relevant details and recent case law – J.P. Koning does a great job of summarizing. Specifically, a Las Vegas man was convicted in 2009 of tax evasion for paying his employees in gold coins at the face value amount ($50) of the one-ounce American Eagles. The court said that it’s the intrinsic/market value that counts. In addition, under Section 16.2 of the Federal Reserve Act, the Fed is only supposed to collateralize notes where the underlying securities are sufficient in amount. Put differently, it would be a blatant disregard of the rules to pretend that a $1,500 platinum coin (at market value) is sufficient collateral to issue $1 trillion in freshly-printed moolahs. But, as the past few years have demonstrated, and the book Financing Failure highlighted so well, those rules are often glossed over for political expediency. In any event, there is a compelling argument for why the platinum coin loophole is not copacetic.
As to my personal take – the whole debt ceiling issue is all about theatrics anyway. The current brand of Republican is as much austerian as Krugman is neocon. In other words, much like the “fiscal cliff”, don’t expect anything substantive to come out of this dance. No meaningful grand bargains, so why even bother with the charade in the first place.
