Political elites won’t shut up about the trillion dollar platinum coin.
For over a week now, pundits and power brokers — including members of Congress, a Nobel Prize-winning economist, a former director of the Congressional Budget Office, and two former U.S. Mint directors — have engaged in an animated public debate over a bizarre-sounding premise: If the Republican-led House holds the country’s debt limit hostage to its policy demands, President Obama’s Treasury Secretary should order the Mint to produce a large-denomination platinum coin — it has to be platinum — and, once deposited at the Federal Reserve, use the funds to meet existing financial obligations to creditors, vendors, contractors, seniors, and so on.
The idea began its rapid transition from fringe to mainstream after Rep. Jerrold Nadler (D-NY) endorsed it in an interview with Capital New York last week. Bloomberg’s Josh Barro, and Business Insider’s Joe Weisenthal took it from there, using well-read platforms to force economic thought leaders to grapple seriously with the concept.
Barro, Weisenthal and other proponents have fared well in the debate. The idea’s detractors, initially incredulous, soon began dismissing it as fanciful or perhaps illegal. Some now begrudgingly admit that the plain text of the law in question does appear to grant the executive branch the authority to mint the coin, but remain incredulous whenever the concept is broached — concerned, perhaps, that a debt limit workaround will erode their ability to force Obama to cut popular programs like Medicare and Social Security.
The platinum coin dates back to May 2010 — when Democrats still ran Congress and more than a year before the GOP’s demands for concessions in exchange for increasing the country’s borrowing authority nearly caused the government to default on its debts.
Its origin can be traced back to the comments section of a blog.
An American lawyer writing under the pseudonym Beowulf first explained the platinum coin concept in the comments section of a post titled “ Repeat After Me: The USA Does Not Have A ‘Greece Problem’,” written by Marshall Auerback and published on a blog called The Center of the Universe.
His comments caught the attention of other writers, including management consultant Joe Firestone (.pdf), who pressured him to expand on the idea.
“He eventually just broke down and wrote something on it,” said Stephanie Kelton, an economics professor at the University of Missouri, Kansas City, and an early evangelist of the platinum coin plan, in a telephone interview. Kelton is the creator and editor of a website on economic policy called New Economic Perspectives where Firestone and Auerback are both contributors.
“It’s a variation on a theme that many of us have been writing about for a long time,” Kelton said. “If you boil things down to who issues the currency, you can do it via the banks, or you can have the government do it. This goes way back in the academic literature. … Now it’s being referred to as the magic coin and a gimmick, and certainly it has that aspect to it — but this law basically says the U.S. currency can come from the U.S. government. That’s really all the coin is. It doesn’t do anything terribly scary from my perspective. It doesn’t have any danger economically.”
We reached out to Beowulf through a fellow writer at his blog Monetary Realism on Thursday, but did not receive a response in time for publication. But Beowulf did explain his epiphany to Wired Magazine.
The platinum coin idea occurred to him after reading a December 2009 Wall Street Journal article about a clever but shady form of arbitrage in which travelers would purchase commemorative coins being sold at face value by the U.S. Mint using frequent flier credit cards and, upon receipt of the coins, deposit them in their bank accounts, pay off their credit cards, and rack up miles.
Several months later, in May 2010, Beowulf and his fellow monetary enthusiasts were spitballing with each other about what would happen if Congress at some point failed to increase the debt limit, and it hit him. Rather than default, or jerry-rig an overdrafting system with the Federal Reserve, why couldn’t the Treasury mint a “commemorative” coin with, say, a $1 trillion denomination? Not for purchase, of course but to deposit at the Fed, and thus provide Treasury the funds it would need to meet its payment obligations.
The only catch, according to the law, is that the coin would have to be platinum.
Just eight months later, after winning an enormous victory in the November 2010 midterms, the GOP telegraphed its debt limit hostage strategy and the platinum coin solution caught on with economic wise men the same way we all learned about LOLcats.
But in the summer of 2011 as the debt limit fight raged and liberals searched desperately for an escape hatch, the platinum coin was overshadowed by the idea that the Constitution rendered the national debt inviolable — another clever, though more legally dubious, debt limit workaround. Seigniorage was The Kinks. The 14th Amendment was The Beatles.
In August 2011, Congress raised the debt limit and the market for outside-the-box solutions to debt limit crises dried up. But with the economy still stuck in the doldrums, and Congress and the Fed both too gridlocked to yank it out, some economists began kicking around the idea that the Treasury should use its minting powers to conduct a bit of back door monetary stimulus. Sadly, even if you assume Treasury could use what amounts to fiat money to meet existing payment obligations, it would have a much harder time getting that money into the hands of consumers and investors without direct congressional authorization. A trillion dollar coin might avert default, but a rogue Treasury secretary couldn’t just use it to inflate the currency or jumpstart the economy.
Fortunately for numismatists the world over, the GOP decided to pick another fight over the debt limit. That reinvigorated the discussion. Then, on Jan. 2, New York Congressman Jerry Nadler, a Democrat, said in an interview that it would be unwise for President Obama to cross his fingers and hope House Republicans would come to their sense before creating a crisis — and floated the platinum coin as a workaround.
“I’m being absolutely serious,” he said. “It sounds silly but it’s absolutely legal. And it would normally not be proper to consider such a thing, except when you’re faced with blackmail to destroy the country’s economy, you have to consider things.”
Josh Barro, who blogs on economics at Bloomberg, applauded Nadler and called for Obama to take the country “over the platinum cliff.”
At this point, one imagines, the blogger Lambert, who exhaustively catalogs media mentions of the platinum coin at Corrente Wire, became insanely busy.
On Wednesday, January 9, a week after Nadler made the platinum coin idea semi-respectable, NBC’s Chuck Todd posed the platinum coin question to White House Press Secretary Jay Carney during the daily press briefing, which was broadcast live nationally on cable news.
Carney demurred on whether the White House and Treasury were seriously entertaining the platinum coin idea, but clearly would prefer to avoid that course. “You can speculate about a lot of things, but nothing needs to come to these kinds of, you know, speculative notions about how to deal with a problem that is easily resolved by Congress doing its job,” Carney said.
But because the Obama Administration has officially rejected the idea that the 14th Amendment empowers the President to ignore the debt limit, the platinum coin has become the gold medal champion of bizarre solutions to manufactured congressional crises.
Unless, of course, a new idea comes along and knocks it out of contention.
