Published On: Wed, Jan 16th, 2013

The curious case of the one trillion dollar coin

When the Nobel Prize winner and economist Paul Krugman supported Obama’s decision to consider the one trillion dollar coin idea, a great dispute started in the media about this solution. Is Krugman going crazy or have things reached such a point that even crazy ideas are better than nothing? Is there no other solution for one of the most powerful countries on the planet to pay its debts?

Day trading website, says that the one trillion dollar concept is easy to grasp. As the US is reaching its debt limit, there are three options: raise the debt limit, which will bring the country into further debt; print money, which will cause hyperinflation; or dive into default. The supporters of the one trillion dollar coin claim that, as it would be kept in the Federal Reserve and never go into the market, it should not cause inflation and would allow US to pay its debts.

Paul Krugman did not enthusiastically applaud the new coin, but merely stated that “He (Obama) will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious”. It seems that Krugman, as well as to other economists, investors and a great portion of the public, believe that Republican politics will drag the country in default. They are, therefore, willing to try out this strange -yet legal- option.

The alternative of raising the debt ceiling – presented last year by Treasury Secretary Geithner- would require a change in laws, a process that can be very stressful for the political scene and rather lengthy as well. So turning to a solution that is already legal, seems like a promising idea.

But how come and it is legal to mint a platinum coin that is worth that much? It all started in 1995. Coin collectors love to be able to have all sorts of coins, but at that time the platinum coins that were issued cost $600 or more. This was a price that made them unattainable for many collectors. After filling complaints to Republican M.Castle, who was in charge of the relevant Subcommittee of Monetary Policy, a provision was attached in a government funding bill, that would solve this issue. It stated that “… the secretary of the Treasury may mint and issue platinum coins in such quantity and such variety the secretary determines to be appropriate”. And this is how the one trillion coin became a legal possibility.

Republicans are very doubtful about this action and Rep. Greg Walden is planning to file legislation, in order to stop this new coin from being minted. In his own words: “Some people are in denial about the need to reduce spending and balance the budget. This scheme to mint trillion dollar platinum coins is absurd and dangerous, and would be laughable if the proponents weren’t so serious about it as a solution”. Republicans are firm believers that further cuts need to be made but Democrats keep pointing out that more than $2,000,000 have been cut from programs that supported the middle class and no further cuts should be made in order to retain a decent level of quality of life for Americans.


Share Button

About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.