The $1 Trillion Coin

In another startling display of unconventional citizen action, a new petition has been started on We the People, a site that is quickly becoming one of our favorites here at *AT*. Unlike the past petitions we have covered though, this one actually seeks to solve a real problem – and that problem is the debt ceiling. Solution? Have the US Treasury Department mint a coin worth $1 trillion. *Sigh*…I’m no economist, so this one will take a while to pick through folks.

Question One: WHY???

It’s a simple concept: we would be creating one trillion dollars out of thin air. They would literally deposit the coin into the accounts of the US Treasury and use it to help pay off our rising national debt. Boom. Done.

Question Two: How?

Even though it is a bizarre idea, it may be completely legal. Back in 1995, Rep. Michael Castle (R), who was then head of the House Financial Services subcommittee drafted a bill with the following language:

Notwithstanding any other provision of law, the Secretary of the Treasury may mint and issue platinum coins in such quantity and of such variety as the Secretary determines to be appropriate.

The purpose for this was to allow smaller platinum coins to be minted at the Treasury’s discretion, because some collectors could not afford a $600 platinum commemorative coin. Unfortunately, that bill did not pass, but similar language was incorporated into another bill passed in 1997:

The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

And there it is. According to this provision, Treasury Secretary Tim Geithner could probably mint a trillion dollar coin tonight if he wanted to – legally. At least according to Rep. Jerrold Nadler (D) of New York. Still, many people believe that the courts would eventually block such action, because the power to mint and regulate coin currency lies with Congress; giving one member of the Executive branch power to get around Congress could easily mean the origincal bill could be declared unconstitutional. But the problems don’t end there.

Question Three: But…We Could Create One TRILLION Dollars!!!

Stay with me here! Currency itself does not inherently have value; like anything else, it is only worth what it is perceived to be worth. For example, a five dollar bill isn’t really worth $5, it is worth something else valued at the same price. If I ask you to mow my lawn, and you said you would do it for a cup of coffee from Starbucks, I would give you a $5 bill because it can be exchanged for that cup of coffee. Thus, currency is simply a medium through which we can exchange goods and services that are worth the same thing, as determined by people’s willingness to pay at a certain price (a cup of Starbucks wouldn’t cost $4 if there weren’t so many people still willing to pay that much for it). Therefore, the only thing that would make that hunk of platinum worth $1 trillion is because the Treasury says it is. But if in the future our government or economy were to collapse and the dollar loses its value, that platinum coin would be worth nothing but its weight in platinum. But that is kind of a side-example of how currency works more than an actual problem with this plan.

By adding $1 trillion into the economy, we would run the risk of inducing massive inflation. This is the name given to the trend of gradually rising prices over time. There are a number of factors that can lead to inflation, but when inflation rates get very high – say, over 10% – it is a problem usually caused by an increasing supply of money. The reason for this is because when more money is put into the system, the buying power of all money in the system is decreased – kind of like why common baseball cards are worth much less than rare ones. Because more money has been introduced into our economy of the years (usually as way to facilitate economic growth and availability of capital), the buying power of $1 has decreased. This is why we lose money when we produce the penny – because we have had to spend more and more each year to produce something worth relatively less and less.

In 1945, the Hungarian pengő lost most of its value due to a variety of factors in the aftermath of World War II. In 1944, the highest printed denomination was 10,000 pengő. By mid 1946, it was 100,000,000,000,000,000,000 pengő. By the end of July 1946, when it was converted to a new currency, the inflation rate for that period had reached 41.9 quintillion percent. While we cannot expect anything like this, the dangers of increasing the monetary supply should not be ignored.

Question Four – No More Questions

That’s it. The Obama Administration will not support this, so the petition is doomed to fail…still, it is an interesting and hilarious way to get our country back on the track to fiscal sanity!


2 thoughts on “The $1 Trillion Coin

  1. The treasury could, in theory, create a trillion dollar coin, but the inflation would be extremely detrimental to the U.S. economy. While the congress does have power to tax and borrow, which does effect the U.S. money supply, they do not have the power to print money. That right is afforded exclusively to the FED. As far a fiscal sanity is concerned, such an insane act as creating a trillion dollar coin, would never return the economy to normalcy. The FED uses monetary policy to influence the money supply, which spurs economic growth or slows an economy down, as needed. Simply printing more money to cover national debt does not work. It would cause more problems than it would fix.

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