What’s this about a trillion dollar coin?
The United States hit its statutory borrowing limit, or debt ceiling, of $16.4 trillion at the end of 2012. Part of the recent political turmoil has been due to the inability of Congress to agree on measures to raise the debt limit, with Republicans holding out until Democrats agree to spending cuts on things like social security.
In order to circumvent this Congressional impasse, the U.S. Treasury could simply mint a trillion dollar coin.
31 USC § 5112 (k) states “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.”
So, while the Treasury and U.S. Mint have strict guidelines for printing other forms of currency, this loophole gives the Treasury free reign to produce platinum coins. The purpose for this was to allow for the minting of commemorative coins for collecting purposes, but did not specifically limit production for those purposes.
The Treasury could then simply deposit this coin with the Federal Reserve and thereby have one trillion dollars with which to pay off debts.
Sound like an inflation nightmare? Minting a one trillion dollar coin is no more inflationary than borrowing another trillion dollars. So, in the end, it is simply a wash. A greater issue is the limiting affect that minting a coin in order to circumvent congressional deliberations would have on federal checks and balances.
However, the Treasury announced on January 12 that it would not be minting the coin because the Federal Reserve would not accept its validity as a deposit. So, for now, the issue is off the table. We’ll see if it returns.
The opinion voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.