The Trillion Dollar Coin Option

Posted on the 06 January 2013 by Jobsanger
(The image above is from the website capitalnewyork.com.)
It seems certain that the House Republicans are going to shut the federal government down by refusing to raise the debt ceiling limit -- unless the Democrats (and President Obama) cave in and let those Republicans make draconian cuts to programs needed by children, the poor, the unemployed, and the elderly (including benefit cuts to Social Security and Medicare). The president has said he will not agree to that, and it is extremely doubtful the Republican cuts could even clear the Senate.
That means the United States is once again looking at the possibility of Congress forcing the government to default on its debts. When this happened last year, the government had its credit rating downgraded and lost millions of dollars -- and it could be even worse this year, since the Republicans seem even more willing to shut things down for an extended period of time (and are saying they will not compromise on their demands).
Since agreeing to the hard-hearted demands of the House Republicans is unthinkable (since it would not only hurt already-hurting Americans, but would damage the economy further by shrinking the amount of money circulating through it), liberals are trying to come up with some options that will avoid the fight over raising the debt ceiling limit. One option some have proposed is for the president to claim a constitutional privilege to ignore the debt ceiling (since the Fourteenth Amendment says the U.S. government cannot refuse to pay its debts). This would involve a legal fight that would end up in the Supreme Court, and considering the conservative lean of the current court, no one can be sure how that would come out.
But their is another option -- one that takes the word weird to new heights. Rep. Jerrold Nadler (D-New York) is proposing the Secretary of the Treasury mint a single platinum coin in the denomination of $1 trillion and deposit that coin in the government's account. That action would make the debt ceiling fight moot, since the government would then be a trillion dollars under the debt ceiling limit.
I'm sure that some of you are probably saying at this point that the coin couldn't be worth a trillion dollars since there wouldn't be a trillion dollars worth of platinum in it -- and you would be partially right, because the amount of platinum it would take to make the coin could be bought for far less. But consider the $100 bill. It is nothing more than a piece of paper with some printing on it, and that paper is not worth anywhere near a hundred dollars.
United States money does not get its value from what it is made out of, but from the trust of the people that the money is worth what the government says it is worth (and that the government will stand behind that designation of worth). In plain language, U.S. money is worth what the U,S. government says it is worth, and if the government issues a trillion dollar coin, then that coin is worth a trillion dollars.
Others may be thinking that it would be illegal for the Secretary of the Treasury to mint a coin in a trillion dollar denomination, but they would be wrong. A few years ago, the congressional Republicans gave the secretary that power (over the objections of the Democrats). The purpose of doing that at the time was to give the United States some leverage in the platinum bullion market (and it worked), but the law did not limit the denomination of the coins the Secretary could issue or the purpose for doing that. And the Secretary of the Treasury at the time the law was passed says he believes the issuance of a trillion dollar coin would be legal. Here is what that law says:
subsection (k) of 31 USC § 5112 "Denominations, Specifications, and Design of Coins"
(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.
Now Rep. Nadler doesn't think the coin would actually have to be minted. But he does think the threat of minting such a coin would give the president needed leverage in the ridiculous debt ceiling fight. And minting the coin would not give the president the right to spend any more money. The president, by law, can only spend the amount of money he is authorized to spend by the U.S. Congress -- not more and not less than the amount authorized by Congress. That in itself shows just how ridiculous the debt ceiling fight really is -- since it means the Congress would be refusing to let the president spend the money that Congress ordered him to spend.
The truth is that the idea of minting a trillion dollar coin is ludicrous -- but no more ludicrous than having a debt ceiling on spending that Congress has authorized. What should really happen is that Congress should pass a law that would outlaw both the debt ceiling and the trillion dollar coin. Then Congress should get down to the real work of passing a reasonable budget -- one that would raise revenues, make budget cuts, and protect Americans who are hurting the most (including those who depend on Social Security and Medicare).
But that would make sense, and making sense was not something the 112th Congress was capable of doing -- and its starting to look like the 113th Congress will be just as ridiculous and incompetent as its predecessor.