Felix Salmon

Why we won’t mint a platinum coin

By Felix Salmon
January 7, 2013

Let’s be clear about this: no one’s going to mint a trillion-dollar platinum coin. Nor is anybody going to mint a million million-dollar platinum coins. But it would probably be stupid for anybody in the government to say that they’re not going to do it.

The trillion-dollar coin is the fiscal equivalent of the Flying Spaghetti Monster: a logical reductio ad absurdum designed to emphasize the silliness of an opposing position. For instance, if you don’t believe that churches should be tax-exempt, then you just claim that your entire family are Pastafarian priests, and that therefore all your investment income should be tax-exempt. Or rather you claim that you could claim that, but doing so would obviously be absurd; the logical implication is that failing to tax the investment income of, say, the Catholic church is equally absurd.

In this case, the absurdity to be pointed out is the debt ceiling. Everybody who’s ever been in charge of any country’s finances knows that the concept of a debt ceiling is profoundly stupid, self-defeating, and generally idiotic. And we discovered in 2011 that it can do very real harm. Back then, I hated the idea of the platinum coin:

Tools like the 14th Amendment or even crazier loopholes like coin seignorage would be signs of the utter failure of the US political system and civil society. And that alone could mean the loss of America’s status as a safe haven and a reserve currency. The present value of such a loss? Much bigger than $2 trillion.

This is the real problem with the main argument for minting a coin, which is that “yes, it’s a stupid gimmick, but so is the debt ceiling, and the debt ceiling is a lot more harmful than a coin would be”. That’s true, but it’s important to recognize just how damaging the platinum-coin move would be, all the same. It would effectively mark the demise of the three-branch system of government, by allowing the executive branch to simply steamroller the rights and privileges of the legislative branch. Yes, the legislature is behaving like a bunch of utter morons if they think that driving the US government into default is a good idea. But it’s their right to behave like a bunch of utter morons. If the executive branch failed to respect that right, it would effectively be defying the exact same authority by which the president himself governs. The result would be a governance crisis which would make the last debt-ceiling fiasco look positively benign in comparison.

There’s a reason why the proponents of the platinum-coin approach are generally economists, or at least economically-minded. The idea makes gloriously elegant economic sense, and attempts to shoot it down on economic grounds generally fail miserably. You can try a legal tack instead, but that doesn’t work much better: the coin is as logically robust as it is Constitutionally stupid.

No one in the executive branch has any real desire to mint a trillion-dollar coin — you can be sure of that. But the coin-minting advocates are OK with that: they just want to use the threat of the coin to persuade Congress that it should just go ahead and allow Treasury to pay for all the spending that Congress has, after all, already mandated. As a result, while no one intends to actually mint a coin, any statement to that effect would constitute unilateral disarmament in the war between the executive and the legislature.

But there are two problems with this approach. The first is that it’s a version of Hank Paulson’s famous dictum that “if you have a bazooka in your pocket and people know it, you probably won’t have to use it”. That wasn’t true for Paulson, and in general it’s not true of bazookas. In politics as in the markets, if you have a bazooka in your pocket, you’re likely to be backed into a position where you’re forced to use it, sooner rather than later.

The second problem is that what we’re talking about here has a kind of Cold War mutually-assured-destruction mentality: “don’t you dare try to force a debt default, because if you do, I’ll come out and render you entirely irrelevant with my platinum coin”. The nihilistic logic of the Cold War was brutal and scary at the time; but at least it was played by people who respected each others’ intellectual prowess. In this case, we’re basically talking about Barack Obama trying to bluff the House Republicans. And as any poker player knows, when you’re up against a very stupid opponent, you should never try to bluff.

The solution to the fiscal cliff crisis was to let the House Republicans overstretch, self-destruct, and render themselves powerless: that’s how to best deal with such people. There’s exactly zero chance that the House Republicans, faced with the Coin Threat, will suddenly turn logical and decide that they’re not going to play political games around the debt ceiling after all. Rather, the Coin Threat is a political game, played by the other side: it’s the executive branch bringing itself down to the House Republicans’ level.

If you believe that the country is best run by grown-ups, you can’t believe in #mintthecoin, because it simply isn’t a grown-up strategy. If you believe that the House Republicans behave in crazy and illogical ways, then you can’t believe in #mintthecoin, because the threat of minting the coin doesn’t work against someone who’s crazy and illogical. And if you believe that the best way to approach the debt ceiling is to try and abolish it altogether, then you can’t believe in #mintthecoin, because the entire strategy is based on the idea of keeping the ceiling where it is, and then trying to circumvent it.

So while #mintthecoin is an amusing intellectual exercise, no serious executive-branch politician should or will embrace it. Not unless he wanted to torpedo the international credibility of the United States just for the sake of some short-term political one-upmanship.

34 comments so far | RSS Comments RSS

“the international credibility of the United States”

You mean the knowledge that the United States will not default its obligations? That’s exactly what you’re giving away. Ask S&P back in 2011.

Posted by klhoughton | Report as abusive

Not only is there some sense in doing so, there is some historical precedence for it. FDR suspended gold convertability and altered the price. He did have a congress to back him, but arguments it will be costly in market terms are just as silly as they make no economic sense. Markets fear not getting paid, much, much more than being paid in a less valuable currency, thus the spread in interest rates between sovereigns and Greece. Markets are more sophisticated then many congresspeople.

Posted by MyLord | Report as abusive

If the minting of the coin is legal, how does it create a Constitutional crisis? Asserting the 14th Amendment is very questionable, but the law clearly says the Treasury can mint the coin. So…where’s the crisis?

Posted by DaDaDan | Report as abusive

Bit heavy on rhetoric and light on arguments, Felix. and no, “we have to let the grownups do their worst” is not an argument. Furthermore, (“grownup”) “credibility” is irrelevant, the US is the largest money pool in the world, people cannot go elsewhere with their money. And please stop dreaming of republican implosions, they will not occur; moreover, the republicans are not the problem of the left, the democratic party is.

Posted by Foppe | Report as abusive

I feel like there is a deep desire among a lot of Democrats to match Republicans crazy-for-crazy. This is just the latest manifestation of that desire. But I’m with Felix: throwing out the rules this strongly would have long-running process side effects that will not make things better. I don’t think that we can reasonable predict what those side effects will be, except that they could be deep and profound. You don’t mess with unknown unknowns like that, even if it makes strong economic sense in the short term.

Politically, its also a clear loser for Democrats.

Posted by EJF | Report as abusive

As other commenters remind us regularly, there is no practical difference between a $1000 bill and a 3-month Treasury bill. They are both worth $1000, both fully liquid, and neither pays interest. (The T-bill pays twelve cents interest every three months, which I’m sure you’ll agree is negligible.)

So how does coin seignorage change anything? The credibility of the US dollar depends on the reluctance of the Treasury and Fed to allow runaway inflation. And that depends as much on fiscal policy as on monetary policy, no?

Posted by TFF17 | Report as abusive

Nor should we assume the debt adverse do not want to see platinum coined; this may be their objective.

Posted by MyLord | Report as abusive

Well thanks a lot Mr Buzzkill ..

Posted by Woltmann | Report as abusive

“If the executive branch failed to respect that right, it would effectively be defying the exact same authority by which the president himself governs. The result would be a governance crisis”

The Executive branch is breaking the law if they fail to meet the government’s obligations. If Congress creates a damned if they do, damned if they don’t scenario for the Executive, I fail to see why ignoring the debt ceiling (or sidestepping it through seignorage) is any worse from a legal, constitutional, or governance standpoint than defaulting on debt obligations.

Posted by loudnotes | Report as abusive

The coin is imperative now as it is the key plot point in my friend Steve’s movie sequel to his Gilbert Gottfried/Samuel L. Jackson vehicle “The Doomsday Guy,” in which an unassuming though insufferable innocent (Gottfried) unwittingly finds himself cast as the key Presidential Aide–the guy with The Briefcase. But in this world, in order to launch the nukes, the President literally must “kill the first man.” Hijinks ensue when Jackson decides he really wants to kill Gottfried whatever the consequences, but in the end, a Very Important Lesson is Learned.

Anyway, the sequel: “Doomsday Guy II: This Time It’s Fiscal,” revolves around the coin, which GG’s character manages to lose in an arcade game (among other things). So you can see how important it is that they actually minth the actual $Trillion coin.

Posted by Eericsonjr | Report as abusive

idiotic idea. it is like paying off a credit card with another credit card

Posted by Diom | Report as abusive

Obama needs to get in touch with Jamie Dimon or someone similar via his treasury secretary if need be and make it clear he expects Wall Street to give McConnell and Boehner some advice, namely not to go the route of confrontation leading to disaster. Tell them Wall Street has had enough of the stupid brinksmanship and demands that it stop or else the GOP will be frozen out of any more money for its campaigns. An angry call from Dimon or the head of Goldman Sachs would lead to a GOP cave in very quickly.

Posted by Chris08 | Report as abusive

No,the platinum coin, whatever it’s other disadvanatages, would not “effectively mark the demise of the three-branch system of government, by allowing the executive branch to simply steamroller the rights and privileges of the legislative branch.” The executive could still make only the expenditures that Congres authorized.

Posted by Thaomas | Report as abusive

I agree that while the platinum coin idea is fun, we all would be better served with a “grown up” approach. Obama should say that Congress needs to do its job…and then concentrate on pressuring them to do so. This includes using the bully pulpit; having the Senate sending legislation eliminating the need for the separate vote on the debt limit; pressure from the financial market leaders; and making arrangements for Boehner to cut out his crazy caucus on key votes through arrangements with the House Democratic caucus.

Posted by HaleAkala2013 | Report as abusive

“In this case, we’re basically talking about Barack Obama trying to bluff the House Republicans. And as any poker player knows, when you’re up against a very stupid opponent, you should never try to bluff.”

Felix, I think you cross a line here calling House Republicans “very stupid” as opponents.

First, all “House Republicans” are NOT blindly supportive of the Tea Party agenda. Neither am I. They are NOT a homogeneous group by any real measure.

But I respect their traditionally docile “freshmen” for their strident and fervent opposition to continuously raising the America’s “credit limit” even though everyone knows it WILL be increased AGAIN and AGAIN no matter what. Their position is NOT “stupid”.

It is actually the position of those they oppose whose position that is “stupid”, but try to find someone honest enough in government to say that. Everyone has admitted that America’s current spending/revenue situation is economically unsustainable. They just categorically refuse to acknowledge that America’s debt ceiling is our “canary in the coal mine”.

The individual problems facing America such as gun control, sequestration, educational dysfunction, crumbling infrastructure, gay marriage, the legalization of marijuana, contraception, abortion, corporate contributions, filibusters, violence against women, disaster relief, and the need to approve a Farm Bill are mere political distractions, intentional ones, to divide “we, the people”. These have been very effective and remain so.

We need to comprehend that America’s economic sustainability primary is primarily threatened by only two things. The first is the obscene expense and inefficiency of our “for profit” medical system and the government bureaucrats that process much of their money. The second is the actual economic drain on America’s economy by illegal immigrants (and all of the others who benefit from this drain).

Bilingual expenses arising out of their unwillingness to assimilate as prior immigrants are huge. Their large families (“American citizens” NOT) disproportionately enjoy essentially unrestricted access to the finest medical treatment and procedures in Emergency Rooms across this country. Local, state and federal taxpayers pay some of those bills; but more and more local hospitals are considering closing their “loss-leader” Emergency Rooms just to keep their doors and beds open.

These are the two primary engines driving American government spending beyond available revenue. And yet our politicians would have Americans believe “we” can “have it all” TODAY. It’s a lie. No way to sugar coat that. And yet a majority of Americans seem to believe “we, the people” have no choice and no vote on current “practices”!

America solves has a SPENDING PROBLEM! Effectively address the above two issues and our other problems either go away or can be addressed as appropriate in the fullness of time. If we DON’T solve our SPENDING PROBLEM, nothing else matters anyway. Either way, it’s going to be rough ride.

I’m not saying one side is right or the “other side” is wrong. I’m saying Americans need to address the REAL problems together, by consensus. I’m sure I will HATE some of the decisions cuch a consensus will make, as will we ALL. But if anyone has a better idea, NOW’S THE TIME!

Posted by OneOfTheSheep | Report as abusive

“The solution to the fiscal cliff crisis was to let the House Republicans overstretch, self-destruct, and render themselves powerless: that’s how to best deal with such people.”

I want to remind everyone, House Republicans vote on a Balanced Budget Amendment at the start of every new term, and the BBA is supported across the chamber by Senate Republicans, too. First two House Joint Resolutions proposed a BBA.

What is the BBA, if not keeping the debt ceiling in place? Spending has to be offset by cuts.

So be it, no compromise, and have up / down votes on a clean bill to increase the debt ceiling, every week. And if we hit the debt ceiling, so be it.

There is a monumental risk to the economy to go past the debt ceiling deadline, but that risk remains with us in perpetuity if Republicans never get the opportunity to see the consequences of their dogma tested in real life.

It is the ONLY way to put this zombie idea to rest, six feet under.

Posted by GRRR | Report as abusive

Felix, your overwrought concerns are unfounded for numerous reasons.

I’m the former Mint director who, with Rep. Mike Castle, wrote the platinum coin law & produced the coin authorized by the law, so I’m in a unique position to clarify matters. Here’s the Cliff Notes version:

* Sec. 5112 of title 31, US Code gives the Sec. complete discretion re all specs for the coin, incl. denominations.

* The accounting treatment of the coin is the same as for all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, & transfers $1 trillion to the treasury’s general fund where it’s will finance govt. ops. just like tax revenue. If the coin die is produced in advance, the process would take a day or two.

* Once the debt limit is raised the Fed ships the coin back to the Mint, the accounting is reversed & the coin is melted. The coin would never be “issued” or circulated & no bonds would be need to back the coin.

* There are no negative macroeconomic effects of this option. It works just like additional tax revenue or borrowing under a higher debt limit would. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books and the coin melted.

* This does not raise the debt limit so it can’t be characterized as circumventing congr authority over the debt limit. Rather, it delays when the debt limit is reached.

* This preserves congr. authority over the debt limit in a way that reliance on the 14th Amendment would not. It also avoids the protracted court battles the 14th Amend. option would entail & another confrontation w/ the Roberts Court.

* GOP objections to all this will be ironic since the law was passed in 1996 when both the House and Senate were under GOP control.

Posted by PDiehl | Report as abusive

Most of the US fiscal problems could be cured by simply raising the government revenue collected relative to GDP up to the level of Canada—and that is not nearly as high as is general in Europe. The US problem is much to low a level of taxation and revenue, not spending or really anything else. Most of all those supposed issues are simply ways to slip away from the issue of too little taxation. Tax hysteria has become a widespread US intellectual disease.

Posted by Chris08 | Report as abusive

sorry, I should have written “too low”

Posted by Chris08 | Report as abusive

Great article. One quibble: the legal case for the platinum coin is far from airtight. Courts give statutes their “plain meaning”—this is not the same thing as their _literal_ meaning. (Notably, even Justice Scalia eschews this “strict constructionist” or literalist approach to textual interpretation.) So courts will look to a statute as a whole, rather than just an isolated provision, to figure out what a statutory interpretation reasonably means. The platinum coin provision appears in the middle of a statute that specifies a bunch of coins with a maximum denomination of $50, and all the permitted precious metal coins are for numismatic purposes. In context, the plain meaning of the the platinum provision is clear, and it most clearly does not permit an interpretation that would permit the Mint the fund the entire operation of the US government without the need to tax or issue debt. So I think it’s pretty clear that the minting of a trillion dollar coin would be a capricious abuse of discretion by the Secretary of Treasury, and therefor invalid (as well as stupid, etc).

Posted by mewfert | Report as abusive

How does a $1 T coin steamroller the Executive Branch over the Legislative Branch? The President can only authorize spending that Congress has previously authorized. So if they say no, that is no.

Or is this an admission that Congress is truly spineless when it comes to spending?

Take away the nonsense threats over the debt ceiling, and the numerous hours it will take away from actual business, and perhaps Congress would actually have to get to work and do something, instead of spending all their time on posturing.

The coin is a bargaining chip. But how foolish do the Republicans want to continue to be? Or foolish until the voters wake up and throw them out?

Posted by pavoter1946 | Report as abusive

Nobody in the administration is talking about platinum coins. President Obama himself has stated he won’t invoke the 14th Amendment, even though it’s not such an absurd idea. The only people talking about the coin are Twitter gadflies and it shouldn’t be implied that the administration is even thinking about it.

That being said, I agree that the Republicans may have to solve this crisis by self-destructing again, but the collateral damage will be a lot greater than it was last month.

Posted by Fishrl | Report as abusive

Congress and the President go out to dinner at a swanky restaurant. Congress tells the President to order the most expensive dinner and a rare bottle of wine. Congress then refuses to let the President pay for it.

It isn’t at all clear to me why the federal government is assumed to be credible. (Perhaps because there are no alternatives?) Nor is it clear why explicit monetization of the debt alters that credibility. Simply shifting the balance between the $11.5T of debt held by the public and $2.5T of M1.

Posted by TFF17 | Report as abusive

If they tried the platinum coin(s) once, Congress would legislate to eliminate the practice. The Purple party would take back their authority.

It is also possible that the Supreme Court would make them reverse the transaction, on the grounds that only Congress can regulate what is money. The executive may not. The minor exception made by Congress for platinum coins was only intended for numismatic coins — not anything large.

But yes, Felix, you are right. This would end the concept of the dollar as a reserve currency. Only banana republics monetize their debt. Hey, maybe even the Fed would develop a backbone, and refuse the coin, or tell them it is only worth $1000. They don’t want to be stuck with QE not of their own design. Their QE is bad enough, but the coin, which will be a hole in the Fed’s balance sheet for as long as it lasts will be far harder to reverse.

Posted by DavidMerkel | Report as abusive

The logical “reductio ad absurdum” doesn’t end at the debt ceiling it ends at a debt with no plan to ever repay it. THAT is absurd.

Posted by mrdon | Report as abusive

Despite your starting this post with “Let me be clear…”, I’m still confused where you stand on the coin seigniorage approach, Felix. Your prediction is clear: Treasury won’t mint the coin(s). But your prescription is a bit muddled: Treasury shouldn’t mint the coin(s); but Treasury shouldn’t *say* that it won’t mint the coin(s); and/but Treasury shouldn’t say it *will* (or might) mint the coin(s), either. So… Treasury should stay mum on the whole coin issue? Is that your preferred policy?

Also, I’m confused by which direction your rationale runs. Is it a silly political idea because it is bad economic policy; or is it bad economic policy because it is politically silly?

I get the sense that you have two views on the coin. One is an opinion of the idea as a political tool for getting House Republicans to raise the debt ceiling. You think that’s a bad idea politically. The second is an opinion/prediction of the economic effects of the coin. On this, you seem to equivocate (at least by my read). I was hoping you could clarify.

On the one hand, you sympathize with the economic-minded proponents when you say that the coin “makes gloriously elegant economic sense.” You call the economics of the approach “logically robust.”

And yet, you also call it “craz[y] loophole,” say that it “isn’t a grown-up strategy,” and characterize proponents as admitting that it is a “stupid gimmick.” You worry that minting new coinage would/could “torpedo the international credibility of the United States.”

Is the strategy of merely threatening to mint the coin a crazy, stupid gimmick because following-through on the threat would destroy the US economy’s status as a safe haven and the dollar’s status as a reserve currency? Or does the threat-based strategy risk the costly loss of status merely because it *seems* like a crazy, stupid gimmick–even though, if we followed-through on it, it wouldn’t be crazy, stupid or gimmicky?

Posted by Sandrew | Report as abusive

So what you’re saying, Felix, is that the failure of the Congress to actually perform their duties as proscribed by the Constitution and acting as a check and balance to the Executive are essentially strengthening the imperial Presidency. If the legislative branch won’t discharge their duties, the executive will have to take them over.

Posted by majkmushrm | Report as abusive

Tea party is intent on destroying not only Obama but the entire federal government (even if it brings down the US economy) because they have no respect for the federal government. (They need to focus on what they do best — making meth out of their trailers, being careful that the tea bags hanging from their hats don’t catch fire.)

Posted by Leftcoastrocky | Report as abusive

I had to sign up just to respond to this blog. This is not reductio ad absurdum like the author claims. It is a loophole. The example of declaring oneself a church is invalid because tax code prevents such a thing. There are, however, other tax loopholes that can and do get used all the time, until they are closed.

Neither is this “allowing the executive branch to simply steamroller the rights and privileges of the legislative branch.” It is based on a law PASSED BY the legislative branch. They have already used their rights and privileges to allow the measure. Just because they did not expect it to be used in this way does not make it illegal.

I am not saying it will ever be done, because it almost certainly will not. I am not even saying it should be done. However, that doesn’t equate to “crazy” or “stupid”. It is merely a valid idea that is being proposed as a TEMPORARY measure to bridge the gap (the “coin” must still be bought back using newly issued debt when the debt ceiling issue is resolved).

Posted by principaldad | Report as abusive

Without wanting to open too much of a big can of worms…

The Us govnmnt recognize the Vatican as a nation state. Even if you decided to tax every denominations of churches, I doubt you could tax the catholic one

Every church edifice could be interpreted as the equivalent to the consulate of any other nation.

And that is the rub against the grain

Posted by Mellowg | Report as abusive

Wonderous. Here we see a debate on the whole legal / illegal vs. good idea / bad idea area of government.

Just because something is legal (allowed by law) does not necessarily mean it is a good idea.

In much the same sense, minting a $Trillion coin might be legal for the US government, but actually doing so would be considered idiotic.

To put things in perspective, it may be legal for you to staple your nuts to a door in your home, but it is certainly not a good idea.

Posted by rossryan | Report as abusive

What you say is true as far as it goes. However, there is a greater responsibility that the president has and that is the security of the country.

Congress has already authorized the spending. So the president is NOT disrespecting the separation of powers in that regard. In fact, he is doing HIS duties responsibly by ensuring that they get paid to our creditors. If congress wants to alter those obligations, they are free to try.

Posted by sunshine4all | Report as abusive

Very interesting discussion.

Could PDiehl please comment on a comment from another blog:

http://www.washingtonmonthly.com/ten-mil es-square/2013/01/harvard_law_school_pro fessor_l042276.php

“Tom Maguire on January 10, 2013 1:39 AM:

After Prof. Tribe reads the statute more carefully he will see where he went awry.

The law, my emphasis:

(k) 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.

Tribe focused on the Secretary’s discretion without ever wondering what a “bullion coin” is. The US Mint presents the common, widely understood definition:

“A bullion coin is a coin that is valued by its weight in a specific precious metal. Unlike commemorative or numismatic coins valued by limited mintage, rarity, condition and age, bullion coins are purchased by investors seeking a simple and tangible means to own and invest in the gold, silver, and platinum markets.”

You could look it up, even though Tribe did not. Lacking a trillion dollars worth of platinum, the Secretary does not have discretion to authorize a trillion dollar “bullion coin”.

So maybe a “proof coin”? Well, those are just enhanced, specially struck versions of the basic coin. From the Mint:

“Proof: a specially produced coin made from highly polished planchets and dies and often struck more than once to accent the design. Proof coins receive the highest quality strike possible and can be distinguished by their sharpness of detail and brilliant, mirror-like surface.”

Details, details.”

Posted by jbernar | Report as abusive

It is understandable why platinum is not made into coins which is an everyday commodity. It is too precious and too expensive to be made into something “cheap” and is quite senseless to build a 50 cents coin by a million dollar million to state an example. That is why gold and silver coins have been a norm since centuries ago because they are cheaper materials and can be combined with other metals to make cost efficient yet durable coins.

Posted by AndrewCampbell | Report as abusive

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