There is a proposal informally circulating in Washington to evade the debt limit by having the Treasury issue two $1 trillion dollar platinum coins. This is, at least superficially, reminiscent of the Zimbabwe currency debacle that resulted in the issuing of $100 trillion notes now available, on Amazon.com, for a penny each (one of which adorns this writer's refrigerator).
The Washington Post reports:
Last year, Republicans in Congress resisted lifting the debt ceiling until the last minute — and then only in exchange for spending cuts. Panic ensued. So what happens if there’s another showdown this year?
Enter the platinum coins. Thanks to an odd loophole in current law, the U.S. Treasury is technically allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases.
Under this scenario, the U.S. Mint would produce (say) a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed then moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years — without needing to issue new debt. The ceiling is no longer an issue.
“I like it,” says Joseph Gagnon of the Peterson Institute for International Economics. “There’s nothing that’s obviously economically problematic about it.”
In theory, this is much like having the central bank print money. But, says Gagnon, the U.S. government would simply be using the money to keep spending at existing levels, so it wouldn’t create any extra inflation. And if it did cause problems, the Fed could always counteract the effects by winding down some of its other programs to inject money into the economy.
Is the platinum coin option really legal? Apparently so. It was discussed during the 2011 debt-ceiling crisis by Jack Balkin, a law professor at Yale Law School. Under law, he noted, there’s a limit to how much paper money the United States can circulate at any one time, and there are rules that limit how many gold, silver and copper coins the Treasury can mint.
But there’s no such limit when it comes to platinum coins. It’s right there in the U.S. legal code: “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.”
Problem solved, right?
Right. Assuming that one ignores the work of Copernicus -- the same great savant who discovered that the Earth orbits the Sun (rather than the Ptolomaic theory that the Earth was the center of the Universe).
As the Leszek Zygner of Nicolaus Copernicus University writes:
An analysis of Copernicus general views on monetary issues show that he was a follower of the metallist theory of money; he saw the source of the value of a coin in its metal content. For him a coin was a marked (stamped) piece of gold or silver which is used as payment for commodities being bought or sold according to the legal tender laws passed by the issuer, namely the state or the ruler. According to Copernicus all kinds of money have their value (valor) and their estimated value (estimatio); while the value of a given coin depends on the amount and quality of the metal bullion of which it is made, its estimatio is its nominal value set by the overall authority in the country.
A good coin should show no difference between its nominal value and the actual value of the material it has been minted from.
Joseph E. Gagnon, senior fellow of the Peterson Institute, "was visiting associate director, Division of Monetary Affairs (2008–09) at the US Federal Reserve Board. Previously he served at the US Federal Reserve Board as associate director, Division of International Finance (1999–2008), and senior economist (1987–1990 and 1991–97)."
When intellectuals of such distinction can state to Washington, DC's newspaper of record that “There’s nothing that’s obviously economically problematic" about a theoretical near trillion dollar discrepancy between the intrinsic, or market, value and nominal value of U.S. legal tender it would appear that cleverness is triumphing over motherwit in Washington. It might be time for America's best and brightest to refresh their recollection of what happened in Zimbabwe. This is neatly summarized in the Wikipedia:
In the Guardian, on 18 July 2008, a report on Zimbabwe's inflation, said that an egg costs Z$50 billion (GBP 0.17, USD 0.32), and it showed adverts for prizes of Z$100 trillion in a Zimbabwean derby and Z$1.2 quadrillion ($1,200,000,000,000,000.00: approx. £2,100; $4,200) in a lottery. It also showed a monthly war pension currently is Z$109 billion (37 pence, 74¢), shops can only cash cheques if the customer writes double the amount, because the cost will go up by the time the cheque has cleared, and people can only withdraw a maximum of Z$100 billion from cashpoints.
On 24 July 2008, the Reserve Bank of Zimbabwe announced that "appropriate measures are being put in place to address the current setbacks being faced on the currency front, as well as on financial and accounting systems." It promised that in "the next few days" it would institute changes to the minimum cash withdrawal limits and IT systems' constraints. Currently, the government limits cash withdrawals to ZW$100 billion per day, which is less than the cost of a loaf of bread. IT systems cannot handle such large numbers; the automated teller machines for one major bank give a "data overflow error" and freeze customers attempt to withdraw money with so many zeros. That same day, the Institute of Commercial Management reported that ZW$1.2 trillion is worth the same as one British pound.
From January to December 2008, the money supply growth rose from 81,143% to 658 billion percent.
And as for the radically anti-Copernican Dr. Gagnon? Against all appearances... the Earth really does orbit the Sun.
At least, so believe the followers of Copernicus... the advocates for a modern classical gold standard.