Before discussing how it works in the current environment, let’s take a look at the history. It was in the days of the Clinton administration when the Republicans had taken control of Congress. The United States controlled much of the world monetary market. But a small segment of the monetary market, platinum coins, was not within the control of the United States. Congressional Republicans, determined to corner the platinum coin market worldwide, came up with a plan for the Treasury Department to begin minting platinum coins.
The Clinton Democrats at the Treasury Department opposed the idea, but Congressional Republicans pushed it through anyway. Having been duly required to follow the instructions of Congress, the Democratic Treasury Department proceeded to mint platinum coins and did, in fact, corner the world platinum coin market.
So anxious were the Congressional Republicans to corner the platinum coin market that the authorizing legislation did something unusual. The custom in such legislation is that the authorizing legislation specifies the denominations of coins to be struck. Given the desire to corner the world market, Congressional Republicans in this instance authorized that platinum coins might be struck “in any denomination.”
Fast forward to 2012 and the impending debt ceiling limit negotiations, and enter Jerry Nadler (D-NY). Being aware of the platinum coin legislation, Nadler suggested, as a negotiating tactic, that the Obama administration strike a $1 trillion platinum coin and be prepared to deposit it with the Federal Reserve in the US Treasury’s account. The suggestion was designed as a counter to potential Republican attempts to use the debt ceiling limit as a means of threatening default, potentially impugning of the full faith and credit of the United States in an attempt to force spending cuts to programs such as Social Security, Medicare and Medicaid.
As outlandish as the trillion dollar coin idea may sound, it may be legal, and it may avoid the necessity for raising the debt ceiling. The idea has been endorsed by Josh Barrow of Bloomberg View. Joseph Wiesenthal of Business Insider has begun a twitter campaign to adopt the idea and it is now on the petition list that the White House makes available online. In addition, Philip Diehl who was head of the United States Mint from 1994 to 2000 has said that he regards the trillion dollar platinum coin trick as “a viable alternative.” Diehl went on to say that he regards this option has being on firmer legal ground than the 14th amendment option that some, including Nancy Pelosi, have called for.
Here’s how the Daily Beast describes the scenario working:
“Tim Geithner shows up at the neo-Florentine fortress that houses the Federal Reserve Bank of New York and asks to make a deposit on behalf of the U.S. Treasury. But instead of handing over a check—or the Treasury wiring one over—he unveils a single coin to be deposited. It is worth … $1 trillion. And with that, the debt-ceiling standoff would be resolved. Instead of issuing debt in the form of Treasury bonds to fund the gap between taxes and spending, the trillion-dollar coin would cover the deficit, and Congress wouldn’t have to worry about raising the debt ceiling, at least for a while.”
Joe Gagnon, former economist at the Federal Reserve, says he loves the idea and that he would use it if Congressional Republicans resisted raising the debt ceiling. In an odd twist, the Federal Reserve has the power to print money, but the Treasury Department, a department of the Obama administration, has authority to strike platinum coins.