The weirdest solution to the impending debt-ceiling crisis is finally having its day in the sun.
As Brad Plumer explained last month, the Treasury secretary has the authority to mint platinum coins of any quantity and denomination. So, hypothetically, Tim Geithner could mint a $2 trillion coin, deposit it in the Treasury's account at the Federal Reserve, and use that money in lieu of additional borrowing. Suddenly, no one needs to worry if Congress refuses to raise the debt ceiling.
The platinum-coin idea has now been endorsed by the likes of Paul Krugman and Rep. Jerrold Nadler (D-NY). It's also the subject of a White House petition with 1,730 signatories. The hashtag #mintthecoin, created by economist Stephanie Kelton and spread by supporters like Business Insider's Joe Wiesenthal, is catching on, at least among the financial press.
But wait — how did the Treasury secretary ever get this authority? Who would have thought to give it to him, and why?
The story starts in 1995, when Rep. Michael Castle, then the Republican at-large representative for Delaware, took over as head of the House Financial Services subcommittee on domestic and international monetary policy. Issues of coinage were part of that subcommittee's jurisdiction, and so Castle — who tells me that he personally has never collected coins or previously hadn't had much interest in coin issues — started working with coin collectors and others to draft legislation on the topic.
Castle's biggest accomplishment in the role was the 50-state quarter program, which involved issuing 50 differently designed quarters in the order the states were admitted to the Union (it isn't a coincidence that Castle's home state of Delaware was the first admitted). But he also drafted a bill, the Commemorative Coin Authorization and Reform Act of 1995, that included this provision:
Notwithstanding any other provision of law, the Secretary of the Treasury may mint and issue platinum coins in such quantity and of such variety as the Secretary determines to be appropriate.
The logic, Castle tells me, was to enable the Treasury to put out collectable platinum coins of a variety of sizes. At the time, collectors had complained that the smallest platinum coins available were too expensive, a problem the bill was supposed to enable the Treasury to correct. "The investment community wanted flexibility to make fractional coins," Castle explains. "People couldn’t afford the $600 investment, so they wanted the flexibility to put in smaller coinage so that people could collect them."
Castle's interest was in producing income from seignorage (that is, the profit collected by the government by minting coins or printing paper money that is worth more than it costs to produce) as a means of reducing the deficit, albeit by a small amount, without raising taxes or cutting spending. "We saw it as an opportunity to make money for the Mint and the Treasury," he remembers.
The act, which enjoyed considerable bipartisan support including backing from Democratic House members, passed with unanimous consent. It never passed the Senate, but its provisions were incorporated into H.R. 3610, the Omnibus Consolidated Appropriations Act for 1997, which eventually was passed by both Houses and became Public Law 104-208. Here's the section on coinage in Public Law 104-208:
The Secretary may mint and issue bullion 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.
There's a slight problem here. The law stated that the Secretary may issue "bullion and proof platinum coins," but does not state explicitly that the bullion he issues must be platinum. This was later corrected by the United States Mint Numismatic Coin Clarification Act of 2000, written by Rep. Spencer Bachus (R-AL), who until this start of this Congress chaired the Financial Services committee. That act struck the word "bullion" and replaced it with "platinum bullion coins."
When I told Castle — who, following a defeat by tea party activist Christine O'Donnell in the 2010 Republican Senate primary, became a partner in the lobbying division of DLA Piper — about the platinum coin solution for the debt ceiling, he was baffled. "That was never the intent of anything that I drafted or that anyone who worked with me drafted…It seems to me that whatever’s being proposed here is a stretch beyond anything we were trying to do," he said, audibly astonished.
A day later, he called back. "I want to give it my seal of approval," he said, adding quickly, "Just kidding." The plan, he said, is an irresponsible run-around that would undermine the federal government's credibility. The plan is "so far-fetched and so black helicopter-ish a type of methodology of trying to resolve something like this that I think the public would totally scoff at it…It would be an artificial way of trying to create money and I think everybody will see that." It would be better, Castle argues, for the government to actually raise the debt ceiling using normal measures while cutting the deficit.
So the platinum coin plan plainly goes against the legislative intent of the Commemorative Coin Authorization and Reform Act of 1995, as described by its author. But there's another option. The American Eagle Palladium Bullion Coin Act of 2010, proposed by then-Rep. Denny Rehberg (R-MT) and signed into law by President Obama on Dec. 14, 2010, authorizes the Treasury secretary to mint $25 palladium coins "in such quantities as the Secretary may determine to be appropriate to meet demand." So theoretically, Geithner could issue 80 billion $25 palladium coins, collectively worth $2 trillion, and deposit them in a similar manner.