What if the threat of a voluntary default by the United States could be erased by simply turning one tiny scrap of platinum into a coin?
That's right. No debt ceiling problem. No bickering in Congress. No market jitters. The only thing needed is for the Treasury Department to mint a platinum coin with a face value of $1 trillion.
Of course, this is not going to happen. Creating money out of thin air is hardly a solution. It could lead to even more concerns from those worried about inflation. Critics of the Federal Reserve's monetary easing programs would likely be apoplectic if the Treasury Department trumped Ben Bernanke's "helicopter drop" by minting a trillion more new dollars.
The influential New York Times columnist Paul Krugman has already dubbed the talk a "gimmick." But here is why some people think this bizarre strategy could work.
Last week, Treasury Secretary Tim Geithner made it official: Federal borrowing has reached the $16.394 trillion debt ceiling.
Treasury, which runs the government's debt-issuance operation, is busy creating about $200 billion of headroom by employing what it calls "extraordinary measures." That should cover about two months' worth of borrowing.
When the two months expire, Treasury will no longer be able to pay the country's bills -- that is, it won't be able to borrow more money to pay for spending already authorized by Congress.
If Congress does not act to raise the debt ceiling, the U.S. will default on its debts. Not good. But this is where the platinum coin comes in. Normally, the Federal Reserve is charged with issuing currency. But U.S. law, specifically 31 USC § 5112, also grants Treasury permission to "mint and issue platinum bullion coins and proof platinum coins."
This section of law was meant to allow for the printing of commemorative coins and the like. But the Treasury Secretary has the authority to mint these coins in any denomination he or she sees fit.
With a $1 trillion coin in hand, Treasury could deposit the money into Fed accounts, and pay its debts in that manner, instead of relying on bond issuance.
And none of this requires Congressional consent. Talk about an elegant solution.
The White House unsurprisingly hasn't commented on the idea. But Rep. Jerrold Nadler is on board. "I'm being absolutely serious," he told Capital NY. "It sounds silly but it's absolutely legal."
The denizens of Twitter are also enthused:
A petition has also been started on the White House website, should you find this argument convincing. At last count, it had more than 1,000 signatures. The creator of the petition concedes that the $1 trillion coin "may seem like an unnecessarily extreme measure" but that "it is no more absurd than playing political football with the US -- and global -- economy at stake."
Another end-around option to ending the debt ceiling drama involves invoking the 14th Amendment to the Constitution.
That amendment says, in part, that "the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
Although that was written with Civil War debts in mind, former President Bill Clinton said in the summer of 2011 before the last debt ceiling debate that he would invoke the amendment to raise the debt ceiling if he were still in office, "and force the courts to stop me."
President Obama, however, is not so sure. "I have talked to my lawyers," Obama said in 2011. "They are not persuaded that that is a winning argument."
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