The Trillion Dollar Coin: A Loophole For The Debt Ceiling?

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As debate over the debt ceiling reaches new heights on Capitol Hill, a topic that was raised in 2011 has come back around again: the trillion dollar coin. Some say it would solve the problem with the debt ceiling, but does it create other problems in the process?

The Trillion Dollar Coin: A Loophole For The Debt Ceiling?

The idea behind the trillion dollar coin is simple. The U.S. could simply mint a coin completely out of platinum that’s worth a trillion dollars. Then it could deposit that coin into the Federal Reserve. The idea was first suggested in 2011 on an economics blog. It’s essentially a loophole that would allow President Obama to continue paying the nation’s bills even if Congress does not raise the debt ceiling. But would the loophole work?

At the moment, Republicans are pushing for deep spending cuts while President Obama says he won’t negotiate over the debt ceiling. Meanwhile Democrats simply want the debt ceiling to be raised, and speculation about what would happen to the U.S. economy if that ceiling isn’t raised continues.

Some say the stock market could be hurt, while others say the nation’s credit rating would be damaged. Others say it would cause the military and Social Security beneficiaries delays in being paid or even cause a new recession.

Right now one thing remains certain, however. The U.S. does have the authority to mint a platinum coin in any denomination. However the legislator who drafted the law that gave the nation that authority said he did it to broaden options for coin collectors rather than give the federal government a loophole to avoid the debt ceiling.

Meanwhile Republican Congressman Greg Walden of Oregon said he will introduce a law to keep the U.S. Treasury from minting a trillion dollar coin, or any other high value platinum coin, for the purpose of getting around the debt ceiling issue. Also there’s a Twitter hashtag #MintTheCoin, on which supporters of the trillion dollar coin are circulating a petition to push it through.

Probably the biggest argument against minting the coin has to do with inflation. Numerous nations throughout history have been ruined when their governments printed too much money. However, Forbes contributor Donald Marron said in his article that inflation wouldn’t happen if the U.S. Treasury offsets the inflationary impact of such a move by “selling some of the trillions in Treasury securities it owns.”

At this point Congress still has about two months to come to a deal on the debt ceiling, so minting a trillion coin right now would be nothing if not shortchanging the ability of our nation’s politicians to actually work together. But if we come to the end of these two months, what then? Some say minting that trillion dollar coin could be a better alternative to defaulting on the nation’s bills, although Marron points out that the best alternative to reaching a deal could be minting smaller coins rather than one worth a trillion dollars.

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