Disclaimer:  I used to manage a precious metals trading firm, so I know something about the metal trade, but I am out of that business for a year now and my information might be somewhat suspect.

That said, recent suggestions that the President could side-step Republican resistance to raising the debt ceiling by paying down our debt at the Federal Reserve by minting a one trillion dollar platinum coin are totally ridiculous. 

First of all, a $1 trillion platinum coin would weigh 39,000 pounds at current platinum prices.  Very difficult to transport anywhere. 

Secondly, the United States doesn't have any platinum reserves.  We have gold reserves and silver reserves, but no platinum reserves.  We would have to buy the platinum on the open market to issue a platinum coin.

Third, specie currencies such as hard bullion  are priced according to the market value of the metal that the coin was struck on, not the face value 0f the coin.

Ergo, suggestions that we could offset the deficit by declaring the value of a one or two ounce platinum coin are wholly fallacious.  That dog just don't hunt.

Suggestions that the Federal Reserve, a private corporation, would accept a coin worth around $1600 in lieu of $1 trillion worth of accumulated debt are simply fantastic and have no place in a serious discussion about the National Debt.

No currency is priced by the country that issues the currency.  The value of a currency is established by international rates of exchange, and by nominal inflation rates.  As we increase the money supply we decrease the value of the dollar, which results in an inflationary spiral. 

Submitting a $1 trillion platinum coin worth around $1600 in exchange for $1 trillion worth of National Debt would effectively inject an additional $1 trillion worth of paper money into the economy, causing a significant amount of inflation at a time when inflation is the last thing we need.

More to the point, the Federal Reserve would not be obligated to accept the coin at face value since it's true value would be 1/39000th of its face value.  Since the Fed could never resell the coin at it's face value, it could not in good faith accept the coin.

Remember, while we - the US Government mints coins and prints money - we do this per order of the Federal Reserve, not the other way around.

People who propose the platinum solution are either being whimsical or deliberately misleading the gulible into a dead end solution that solves nothing.

Views: 104

Comment by koshersalaami on January 7, 2013 at 9:43am

It was funny, though.

Well, why don't they buy a platinum shell and fill it with another material? I mean, wouldn't they have a hard time finding a bathtub large enough for a coin that big?

Comment by alsoknownas on January 7, 2013 at 10:00am

Good point.

No stats to back me up but I would say that less than 1% of people understand any of this. Maybe 1/39000 of 1%.

Comment by Jonathan Wolfman on January 7, 2013 at 10:06am

I agree and thank you for the detailed info. I do think he ought to go the 14th Amendment route to shut down Repub hostage-taking.

Comment by Safe Bet's Amy on January 7, 2013 at 10:22am

Thank you.  

The whole concept is ridiculous and artificial, but as Paul Krugman so succinctly stated, "so is the Federal debt ceiling".

As for it being viable, well:

*  The government could print 1 trillion 1 dollar coins...

*  Nothing says a coin needs to be pure or worth actual value.  A quarter is actually worth less than a quarter and a penny const more than a cent to produce.

*  The Fed Reserve WOULD accept a coin.  All it represents is a different class of governmental debt.  The Fed has no restrictions on type.

* It will have no impact on the money supply or inflation.  That is because the "coins" would be used only to pay prior debt and could be made redeemable once borrowing authority / the debt ceiling is raised.

As Krugman said, it is a gimmick...  and a good one at that because it bypasses the Rethugs ability to block everything and prevents the Dinocraps from tying more pork to it.

Comment by Safe Bet's Amy on January 7, 2013 at 10:34am

BTW, I do NOT agree with the "14th Amendment Solution".

The debt ceiling is the ONLY think that is in place that keeps a government from printing more worthless money and spending beyond it's means. I certainly don't agree with the Rethugs one sided intransigence (i.e.  give to rich and Corporations and screw the poor), but, unchecked spend by the Dinocraps AND the Rethugs ends up screwing everyone equally and I don't consider that any better.

So no.  You don't get to ignore the debt ceiling and write bad checks forever.  What you need to do is cut the living hell out of the bullshit rules & regs, allow things like competitive governmental pharma purchases, cut subsidies to ultra rich corporations and get the fuck out/quit subsidizing  Iraq, Afghanistan  Libya and Israel.  THAT will reduce the Federal debt faster than ANYTHING either of the self-serving parties have offered.

Comment by Alan Milner on January 7, 2013 at 1:35pm

I would almost agree with you except that the focus for cost cutting remains entitlements, which of course are the only expenses that should be sacrosanct.  The idea of a means test is especially obnoxious.  Social Security was guaranteed to everyone, not just the poor.  Medicare the same.  I would like to see subsidies cut back, military spending cuts, and a refinancing of the federal debt from 10 year bonds to 30 year bonds. that would solve matters for quite awhile.

Comment by Alan Milner on January 7, 2013 at 4:17pm

One trillion $1 platinum coins would work.  They would still weigh 39,000 if they were made of pure platinum which we don't have.  Since the law doesn't specify, they could just as well be made from stainless steel....but the minting of $1 trillion 1 dollar coins would, I think, violate the debt ceiling anyway because that would be tantamount to minting more money that the government is authorized to create.

Comment by MarkinKentuckiana on January 7, 2013 at 6:43pm

Alan - As I understand it, a 1996 law allows the Treasury Dept. to mint platinum coins of any face value regardless of the amount of platinum used in the coins - it was aimed at the commemorative coin market.  As Amy pointed out, the face value of coins (paper money too) has nothing to do with the market value of the materials used to make them.  Treasury could - under the law - mint a $trillion coin using only an ounce of platinum.

The Fed would no options about accepting it.  The Treasury would be depositing the coin into the Treasury account with the Fed.

The Fed may take actions that effect the money supply, but only the Treasury prints or mints physical money - what the Fed does is numbers in computers - which is what most money is these days in the West.  Money is just numbers in computer databases - it only becomes physical when someone hits an ATM for cash.  Treasury only prints/mints enough to meet that demand.

Comment by Alan Milner on January 8, 2013 at 6:43am

There is no legislation that requires the Fed to accept such a coin.  There is a statute that says the US can pay the Fed in Federal Reserve Notes....paper money.  Coinage isn't mentioned. 

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