Coin collectors are not generally regarded as the most powerful lobbying group in American policymaking.
However, in 1995, they secured an unremarkable concession that has since become the foundation of the strangest solution to the US debt ceiling dilemma.
A group of Democrats is calling on the US Treasury to issue a trillion-dollar coin in order to avoid having to persuade the Republican House to approve an increase in the debt ceiling.
Coin collectors were displeased in the 1990s. They wanted to buy platinum collector coins, but the only ones available were $600, which was out of reach for many numismatists.
To enable for lower-cost alternatives to enter the market, Republican congressman Mike Castle inserted a few lines to a bill that stated, “The Secretary of the Treasury may mint and issue platinum coins in such quantity and variety as the Secretary determines to be appropriate.”
Only later did Washington insiders comprehend the law’s consequences. It provides a possible way for the US government to resolve the debt ceiling crisis.
According to Andrew Hunter, Capital Economics’ deputy chief US economist, “the idea is that to avoid a debt ceiling default, the Treasury could mint a very large denomination coin, deposit it at the Federal Reserve, and then the Fed credits their account with the appropriate funds.”
In principle, this would be another method of preventing the US government from running out of money, which Treasury Secretary Janet Yellen has warned may happen as soon as June 1.
The US debt ceiling is a $31.4 trillion limit on the amount of money the government can borrow. It reached the cap in January and is already depleting its cash reserves, while the Republican House is blocking any increase.
The concept of a $1 trillion coin initially surfaced in 2010, ahead of two debt limit crises during Barack Obama’s presidency in 2011 and 2013. “People have pointed out that, due to inflation, it should really be closer to $1.4 trillion now,” Mr Hunter added.
The concept is wrong. The Treasury has the ability to issue this coin, but the Fed is not required to accept it, according to Mr Hunter. “If the Treasury did that even once,” he continued, “it would seriously undermine the Fed’s independence.”
There is also a significant inflationary danger. According to Philip Shaw, chief economist at Investec, creating a $1 trillion coin would basically constitute money printing on a vast scale.
“Raising the debt ceiling means selling bonds, taking money from asset managers, and then spending it.” You’re not making any fresh money. “You are literally printing a trillion dollar coin,” Mr Shaw explained.
It would create a bad precedent. “Imagine the slippery slope of future presidents declaring some kind of emergency.” “There’s a danger of opening Pandora’s Box,” Mr Hunter said.
Treasury Secretary Janet Yellen has dismissed the proposal as a “gimmick.” Fed Chair Jay Powell has also disregarded it.
According to Mr Shaw, the idea would almost probably face legal challenges in the courts. “Categorically, it is not a practical option,” he continued. But, in principle, nothing appears to prevent the US government from doing so.”
