Could two platinum coins solve the debt-ceiling crisis?

December 7, 2012

If President Obama wants to avoid an economic calamity next year, he could always show up at a press conference bearing two shiny platinum coins, worth... $1 trillion apiece.


A mere $100? Pshaw. Try $1 trillion. (Associated Press)

Okay, that sounds utterly insane. But ever since last year, some economists and legal scholars have suggested that the “platinum coin option” is one way to defuse a crisis if Congress can’t or won’t lift the debt ceiling soon. At least in theory.

The U.S. government is, after all, facing a real problem. The Treasury Department will hit its $16.4 trillion borrowing limit by next February at the latest. Unless Congress reaches an agreement to raise that borrowing limit, the government will no longer be able to borrow enough money to pay all its bills.

Last year, Republicans in Congress resisted lifting the debt ceiling until the last minute — and then only in exchange for spending cuts. Panic ensued. So what happens if there’s another showdown this year?

Enter the platinum coins. Thanks to an odd loophole in current law, the U.S. Treasury is technically allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases.

Under this scenario, the U.S. Mint would produce (say) a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed then moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years — without needing to issue new debt. The ceiling is no longer an issue.

“I like it,” says Joseph Gagnon of the Peterson Institute for International Economics. “There’s nothing that’s obviously economically problematic about it.”

In theory, this is much like having the central bank print money. But, says Gagnon, the U.S. government would simply be using the money to keep spending at existing levels, so it wouldn’t create any extra inflation. And if it did cause problems, the Fed could always counteract the effects by winding down some of its other programs to inject money into the economy.

Is the platinum coin option really legal? Apparently so. It was discussed 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?

Well, maybe not. This strategy is hardly risk-free. Opponents could plausibly argue that the original law was intended to set rules around commemorative coins, not to finance the operations of the government. And, of course, the political blowback would be fierce.

Indeed, even Balkin now says that he thinks the platinum-coin option is too risky. If Congress can’t or won’t lift the debt ceiling, then most likely the Obama administration would have to start shutting down parts of government so that it doesn’t default on its debt. That, in theory, would prod Congress to act.

“All those other ideas [like the platinum coin option] are very uncertain, and they could lead to complicated litigation,” says Balkin. “A government shutdown is much more straightforward.”

The platinum coin is only one of many out-of-the-box ideas that have been proposed to avoid a debt ceiling crisis. Some legal scholars have suggested that Obama could declare the debt ceiling unconstitutional under the 14th amendment. Last year, Gagnon suggested that the Treasury Department could start selling off its gold reserves to pay its bills until Congress raised the ceiling.

But the consensus seems to be that all of these options are wildly unlikely. A recent report by Chris Krueger, a policy analyst at Guggenheim Partners, suggested that ideas like a 14th amendment challenge or the platinum coins “are VERY low probability options.”

But not impossible. And if, for whatever reason, Congress doesn’t raise the debt ceiling as part of the fiscal cliff negotiations, then some of these wacky ideas may get more attention.

*Update: Cullen Roche appears to have been one of the first people to discuss the platinum coin idea in 2011 — it came from one of his readers. See also here.

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Sarah Kliff · December 7, 2012