By Teresa Welsh |
It sounds like a joke. It should be a joke. But it is real: Liberal pundits and Democratic members of Congress are urging President Obama to mint trillion dollar platinum coins to fund continued government spending above the federal debt ceiling.
Joe Firestone, the blogger who first proposed the idea, is now calling for a $60 trillion platinum coin to be minted. That would mean completely eliminating all bond-market discipline on federal spending and effectively eliminating the debt ceiling without the approval of Congress.
Former Congressional Budget Office Director Douglas Holtz-Eakin has explained: "Financial markets viewing this clumsy subterfuge would quickly come to the correct conclusion: a country so unable to manage its finances that it resorts to issuing the [coin] is essentially the same as a country so unable to manage its finances that it breaches the debt ceiling. Confidence in the U.S. would plummet, leading to a spike in interest rates and unthinkable economic pain."
This ridiculous scheme would expose America as even more politically dysfunctional than a straightforward payments crisis caused by a prolonged delay in raising the debt ceiling. We would become a laughing stock of the world, justifiably mocked for the outlandish belief that a circus-like coin trick could be used to finance government spending.
Moreover, the coin trick is legally dubious. Edmund Moy, a former director of the U.S. Mint who served under Bush and Obama, has argued that by statute the platinum coin would be worth only its precious metal weight, not its face value. "It may be legal to mint a platinum bullion coin with a $1 trillion face value, Moy wrote, "but it's not legal to pass it off as actually worth $1 trillion if there isn't $1 trillion of platinum in it."
So the scheme as proposed would actually require both fraud and a conspiracy with the Federal Reserve to accept an essentially counterfeit coin at face value. But it is unclear who might have standing to legally challenge the scheme, and it has somehow seemed to have passed the laugh test and entered the realm of political feasibility.
Fortunately, Rep. Greg Walden of Oregon has introduced a bill to close the loophole and unambiguously ban the platinum coin trick. The legislation deserves a vote to at least reveal to the American people which members of Congress are willing to allow the possibility of the scheme being implemented. We have a petition up urging Congress to pass the Walden Bill at www.StopTheCoin.com.
About Phil Kerpen President of American Commitment
Stephanie Kelton Associate Professor of Economics at the University of Missouri-Kansas City
David John Senior Research Fellow at the Heritage Foundation
Dean Baker Codirector of the Center for Economic and Policy Research
Edmund Moy 38th Director of the U.S. Mint
Ted Gayer Codirector and Senior Fellow of Economic Studies at the Brookings Institution