The Trillion Dollar Coin

If you’ve been following the news lately, you’ve probably heard talk about a $1 trillion platinum coin that could solve the current fuss going on in Congress. It revolves around a legislation technicality that would allow President Obama to fulfill the government’s debt obligations without needing to get congressional approval to raise the debt ceiling. John Cochrane at The Grumpy Economist explains how this would work:

“Although the Treasury is not allowed to print money or regular coins and pay bills with them, it can issue “commemorative” coins and sell them directly. So, most simply, it could in principle, pay for a trillion dollars of deficit by minting a trillion dollars worth of commemorative coins.

That’s not very practical. But as a little favor to the platinum lobby, there is no limit to the denomination of platinum coins the Treasury can issue. So, the idea is this: make a trillion dollar coin out of platinum. Deposit the coin at the Fed, just as the Treasury now deposits cash. The Fed creates a trillion worth of reserves in the Treasury’s checking account, and the Treasury can merrily write checks.

(Sidenote: As we’ve discussed in the past, the debt ceiling arguments are ridiculous because it has nothing to do with future spending. The debt ceiling merely needs to be raised in order to pay bills that Congress already approved and incurred in the past.)

But I digress, back to the coin. The idea has been endorsed by Paul Krugman, so it has some economic merit. Regardless, I just can’t wrap my head around this little problem of practicality:

Economics is funny like this sometimes.