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Trillion Dollar Coin

Anyway, the latest news makes me wonder if the president is considering this option:

Partisan battle lines drawn over debt ceiling

This week, Treasury Secretary Timothy Geitner reported that the U.S. government has reached its borrowing limit: $16.4 trillion. This means that Congress and the president have roughly two months to work out a deal to raise that limit. Republicans are saying no deal without spending cuts.

President Obama returns from Hawaii to a capital city in full inaugural regalia. Republicans have their demands on spending cuts, but Mr. Obama has an inflexible demand of his own: no negotiations over raising the debt ceiling.
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The president keeps saying that the debt ceiling is "non-negotiable", but in practice he has no choice but to deal with congress if he wants to raise the debt ceiling. He has not indicated that he would use the trillion dollar coin option or is even considering it, but he must know that it exists. There are good reasons not to even hint that he is thinking about this possibility, because it could cause panic. Except that repeating that he will not negotiate over the debt ceiling is either a bluff, or it means he must have a backup plan. Maybe the backup plan is to shut down the government until Republicans give in, which is the standard response, but not a desirable one for the economy. But at least one other option, like this one, exists.
 
Puppycow said:
And Congress passed a law authorizing the Secretary of the Treasury to carry out the coinage of money, and the law contains the following provision:

So there you have it, all perfectly legal and constitutional.



I think it does need to be produced as a formality. Else, where does the money come from?
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Is it Constitutional for the Congress to cede such authority to the Executive branch?
 
Puppycow said:
And Congress passed a law authorizing the Secretary of the Treasury to carry out the coinage of money, and the law contains the following provision:

So there you have it, all perfectly legal and constitutional.



I think it does need to be produced as a formality. Else, where does the money come from?
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The money would come from the same source as if the coin was produced. As you say it is nothing but a formality. Makes no difference in reality.
 
balrog666 said:
Is it Constitutional for the Congress to cede such authority to the Executive branch?
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Yes. Congress makes the laws and the Executive branch carries out the laws. That's standard procedure. Congress has not "ceded" the authority; they have the same authority to change the law that they have always had. The Treasury Department and US Mint have always been in charge of coining money and printing money. (Or, at least since The Civil War.)
 
rjh01 said:
The money would come from the same source as if the coin was produced. As you say it is nothing but a formality. Makes no difference in reality.
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But it makes a legal difference. Legal formalities are necessary. The Treasury Secretary can point to the precise part of the law that says he can do it. If you think he can just skip the part about actually making the coin, you would have to find another legal basis that allows him to do that.
 
I don't think a $1T platinum coin would pass a legal challenge. It's pretty clear that the law meant these coins, which the gov't already produced in bullion and proof forms, and which already have a baseline value.

http://www.usmint.gov/mint_programs/american_eagles/index.cfm?Action=american_eagle_platinum

http://www.usmint.gov/mint_programs/american_eagles/?action=american_eagle_platinum_proof

I can't see any way producing a similar coin and saying it's worth $1T instead of $100 would ever fly in any way, shape, or form.

How can your 1oz platinum coin be worth $1T when mine is only worth $1700.00?
 
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The mint even says that the platinum coins it sells are the coins authorized in 1996.

It defines a bullion coin as a coin traded at current bullion prices.

It also says this:

A bullion coin is a coin that is valued by its weight in a specific precious metal.
 
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LTC8K6 said:
I don't think a $1T platinum coin would pass a legal challenge. It's pretty clear that the law meant these coins, which the gov't already produced in bullion and proof forms, and which already have a baseline value.

http://www.usmint.gov/mint_programs/american_eagles/index.cfm?Action=american_eagle_platinum

http://www.usmint.gov/mint_programs/american_eagles/?action=american_eagle_platinum_proof

I can't see any way producing a similar coin and saying it's worth $1T instead of $100 would ever fly in any way, shape, or form.

How can your 1oz platinum coin be worth $1T when mine is only worth $1700.00?
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Yours isn't worth $1T 'cause the treasury hasn't stamped $1,000,000,000,000 on it.
 
LTC8K6 said:
The mint even says that the platinum coins it sells are the coins authorized in 1996.

It defines a bullion coin as a coin traded at current bullion prices.

It also says this:

A bullion coin is a coin that is valued by its weight in a specific precious metal.
Click to expand...

This wouldn't be a bullion coin by that definition.
 
LTC8K6 said:
...

I can't see any way producing a similar coin and saying it's worth $1T instead of $100 would ever fly in any way, shape, or form.

How can your 1oz platinum coin be worth $1T when mine is only worth $1700.00?
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Fish around in your pocket and get a quarter.

How much do you think the metal in your quarter is worth if you melted it down?

Nowhere near a quarter.

In the un-melted state, though, it is worth a quarter because that is what it says on it.
 
The coins referenced by that law were already authorized and made at the time. This is crystal clear, imo. The law is clearly talking about traditional bullion and proof coins, like the other coins in the law, and those coins were authorized and made starting in 1997.

The law itself says "bullion" and "proof" coins, and those words have definitions.

We also recently passed the Palladium Bullion coin act...but apparently never got around to making the coins...
 
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Puppycow said:
I remember this idea came up the last time that there was a face-off over the debt ceiling.

I think the argument against it is that it would be breaking a taboo: The Fed is supposed to control monetary policy, not the president or congress, but this would essentially mean the Obama administration taking direct control over money expansion. That itself does not necessarily make it wrong, but it might be reason to be cautious. The idea of having an independent Fed is to make monetary policy decisions not based on short term political considerations but instead in terms of achieving the Fed's twin mandates of price stability and full employment. It's very tempting for the government to abuse this power. Doing it might spook the bond market.

And if they didn't do it last time, maybe there was a good reason.
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Krugman seems convinced that even if it did spook the bond market, the vigilantes would still be unable (on their own, at least) to bid up the interest rates.
 
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