Mainstream commentators are pondering whether the Treasury
Department should use a loophole in its minting power to create a
platinum coin with a $1 trillion dollar face value (though it could
as easily be $15 or $50 trillion) as an end run around the coming
battle over the debt ceiling.
As explained to Ezra Klein by former Mint director and Treasury
chief of staff Philip Diehl, who cowrote the law and oversaw the
minting of the first coins under it, the Treasury would create a
platinum coin conforming to the law with a value of $1 trillion
dollars, deposit it with the Federal Reserve in exchange for $1
trillion dollars, and use that money to service its
obligations.
After the debt ceiling is raised, it would issue debt to cover
what it had paid for with the coin, return the money to the Fed in
exchange for the coin itself, destroy the coin, and carry on with
business. According to Mr. Diehl, none of this would affect the
money supply, addressing concerns about inflation, and the entire
procedure could be executed in a controlled, self-contained manner
with no discernable effects.
Asked on Wednesday whether the Obama Administration had “a
position on this trillion-dollar coin business,” White House press
secretary Jay Carney’s definitive response was:
“There is no alternative to Congress raising the debt ceiling; it’s
its responsibility.” He did not directly address the question. He
did not endorse the plan, and he did not rule it out.
When
asked for clarification, in the form of “a yes or no
question,” his immediate response was less satisfying than an
evasion — it was a cop-out: “I would refer you to Treasury for the
specifics of this question.” Then he kept dancing and dodging. The
rest of this exchange (and the first one) is worth viewing for
yourself, but suffice to say that no clarification was garnered.
And the Treasury Department has
declined to comment.
Doublespeak is the rule for White House press briefings and
politics in general. Maybe Carney genuinely lacked a prepared
answer — though the story was already getting a lot of buzz in the
press. There has not been a briefing since; the next one may put
the issue to rest. That said, various policy experts have expressed
profound skepticism.
Cato Institute scholar Dan Mitchell summarized the scheme with
three words: “Possibly legal gimmick.”
“I think [the coin is], at this stage, very
unlikely,” Mitchell told TAS in an interview.
However, he had a clear message about the precedent it would set:
“Once they do it and get away with it, they are very likely to do
it again and again and again.”
That’s the problem: No discernable practical or procedural
obstacle would prevent the Treasury Department from creating the
coin whenever it wishes. The Federal Reserve System was established
as theoretically private, independent, non-political entity because
governments with direct control over a monopolisitc fiat monetary
system such as ours have a long history of abuse. The status quo is
not ideal, but the trillion dollar platinum coin could
lead to something much worse. Perhaps this is why Congressman Greg
Walden (R-Ore.) is
pushing to ban it — just in case.
