The trillion dollar platinum coin

myp · Dec 9, 2012

This idea has been making the rounds on monetary theory blogs recently. Basically, the Treasury has the power to create money in only one form- platinum coins (those collectable things that you sometimes see advertisments for). There seems to be a loophole however in that Congress never actually set a limit on the denomination of said coins. That means the Treasury could create a trillion dollar (or whatever) coin and deposit it at the Fed. In effect, it could use this little loophole to conduct monetary policy, something which it is not meant to do of course. Or it could do it to pay off the US debt or a number of other scenarios. Quite crazy.

David · Dec 9, 2012

myp said:
This idea has been making the rounds on monetary theory blogs recently. Basically, the Treasury has the power to create money in only one form- platinum coins (those collectable things that you sometimes see advertisments for). There seems to be a loophole however in that Congress never actually set a limit on the denomination of said coins. That means the Treasury could create a trillion dollar (or whatever) coin and deposit it at the Fed. In effect, it could use this little loophole to conduct monetary policy, something which it is not meant to do of course. Or it could do it to pay off the US debt or a number of other scenarios. Quite crazy.

Old idea actually (by old, I mean internet old, I've seen this idea floating around for about a year). The main argument against it is that unless you actually use a trillion dollars worth of metal, such a coin, even kept out of circulation, would inflate whatever metal used into oblivion. If $100 worth of gold (an example) is used to mint a $15T coin, the debt would be wiped out but nobody would touch gold with a 10 mile long stick unless for industrial uses and the effect would be global.

myp · Dec 10, 2012

It is possible it is an old idea but has just resurfaced amongst the monetary blogosphere crowd of late. I think you misunderstood what I meant though. This would be one 1 trillion dollar coin, not many coins worth 1 trillion. The effect on the price of platinum would not be more than the effect the production of one of those collectible dollar coins has.

David · Dec 10, 2012

myp said:
It is possible it is an old idea but has just resurfaced amongst the monetary blogosphere crowd of late. I think you misunderstood what I meant though. This would be one 1 trillion dollar coin, not many coins worth 1 trillion. The effect on the price of platinum would not be more than the effect the production of one of those collectible dollar coins has.

Would you pay $200 for a platinum piece of jewelry knowing that a trillion dollar coin made with the same amount of platinum was out their? Yes you would, you'd jump at the deal. Would the jeweler sell you that ring at $200? Probably not, he'd feel ripped off knowing it was worth $1T and nobody would accept it as money. Granted platinum isn't a major momentary device unlike gold, silver and paper but that would only blunt the effect, not negate it. As for those coins, they're only worth $1 and don't go into circulation, they have less effect on inflation then bills people walk around with.

myp · Dec 10, 2012

David said:
Would you pay $200 for a platinum piece of jewelry knowing that a trillion dollar coin made with the same amount of platinum was out their? Yes you would, you'd jump at the deal. Would the jeweler sell you that ring at $200? Probably not, he'd feel ripped off knowing it was worth $1T and nobody would accept it as money. Granted platinum isn't a major momentary device unlike gold, silver and paper but that would only blunt the effect, not negate it. As for those coins, they're only worth $1 and don't go into circulation, they have less effect on inflation then bills people walk around with.

I think you are misunderstanding what this idea means. No one is talking about price fixing the price of platinum. What you just said is akin to: "would you give someone a $1 bill knowing there is a $100 bill out there somewhere made of the same kind of paper?" That doesn't make any sense.

The platinum is not the important part here. The important part is that the Treasury can mint "collectible" coins that can still be used as currency and they have no denominational restriction on that power.

The trillion dollar platinum coin

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David

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