A Trillion Dollar Coin?

Ken O’Brien

As we wind our way toward the fiscal cliff, Republicans are scrambling for a way out of the conundrum they face of not wanting to raise tax rates at all or being confronted with being blamed for raising taxes on all Americans when the Bush tax cuts expire at the end of the month.

Coupled with that, of course, are the draconian cuts to social programs and the defense budget that would take effect because of the sequestration agreement reached as a result of the 2011 fight over the debt ceiling. 

All these factors militate against the Republicans, because the general consensus is that allowing the country to go off the cliff could trigger another recession, for which the public would blame them according to virtually all polling.

Thus, the feeling appears to be that one approach that might be taken is to give in on tax rates for the top 2% of wage earners and to postpone the effective date of the sequestration cuts until the following congressional session.

Then, some argue, the Republican majority in the House would have the leverage offered, once again, by the need to raise the debt ceiling.

As a possible way of circumventing this repetition of history an idea that first surfaced in 2011 is being spoken about once again.

I first came across this idea in 2011 through an article in The Economist blog Free exchange.

“Sovereign governments such as the United States can print new money. However, there's a statutory limit to the amount of paper currency that can be in circulation at any one time. Ironically, there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.

"To prevent the money from contributing to too rapid inflation, the Fed could simply conduct reverse QE [Quantitative Easing] — sell some of its enormous stock of government debt to absorb some of the new money in the system. Though it's unlikely that inflation would be too serious an issue; indeed, it could be helpful.”

Dan Amira, writing in New York Magazine concluded, “We don't know, this proposal seems kind of ... bizarre. Why mint two trillion-dollar coins when you can just mint a single two-trillion-dollar coin? Other than that, it's perfect.”

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