In an effort to write down its debt and stop the world's largest economy from defaulting as early as next month, the United States is reportedly "seriously" considering creating a $1 trilion platinum coin, according to financial analyst Cullen Roche.
Roche, founder of Orcam Financial Group and a blogger for Pragmatic Capitalism, says that the idea is being taken "somewhat seriously" in Washington. Speaking on the BBC's Today program, Roche said:
"I know it’s been spoken about at the White House and a number of prominent people, including congressman, are talking about it."
The U.S. Treasury would mint the coin and then deposit it into its own account at the Federal Reserve, which would then allow the government to write down or cancel $1 trillion of its $16.4 trillion pile of debt.
When the U.S. hit its $16 trillion debt limit on December 31, the Treasury began to shuffle funds in order to pay government bills. These clever accounting maneuvers, however, will only work until about the end of February as the latest fiscal cliff deal gives lawmakers two months to raise the debt limit before the country defaults.
The idea of minting a $1 trillion coin was raised last year. It has since been floated by several financial analysts in the U.S. in recent days as Congress and the government approach a key fiscal vote.
Roche says that the idea was an "accounting gimmick", and said that it was just "one really silly idea [being used] to fight another silly idea." He added:
"The idea of the US willingly defaulting on debt is beyond crazy. We started kicking the idea around a year ago and it was really a joke and the fact it’s become something sort of serious, well it’s a sad state of affairs that it’s become so dysfunctional in Congress that this is something we’re having to resort to."
Economist Paul Krugman, who writes a New York Times blog, said that while he didn't expect the Treasury to go ahead with the gimmick, there could be a case for it:
"This is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand."
Roche also said that he didn't really expect that the Treasury would mint a $1 trillion coin, but said that President Obama could use it as a threat.
There are limits as to how much paper money the United States can circulate, and there are also rules that govern coinage on gold, silver, and copper, however, the Treasury has broad discretion on coins made from platinum. In theory, the Treasury could mint a platinum coin and assign any value to it.
Krugman said that it was worth noting that this was intended to issue commemorative coins and not as a fiscal measure.