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Monday, October 25, 2021

USA. A trillion dollar platinum coin is about to solve the crisis

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Political disagreement over the increase in the debt limit again threatens the bankruptcy of the US and threatens the stability of the world economy. Economists are looking for a solution to this problem in more and more unconventional actions. One of the proposals is to mint a special platinum coin worth one trillion dollars.

If you believe in estimates provided by the head of the US Ministry of Finance Janet Yellen, in just over two weeks, the US will reach the statutory debt limit – the state will run out of money and the so-called extraordinary resources for public expenditure and debt service – which in practice means bankruptcy. As Yellen warned, the consequences of such a scenario would be catastrophic, not only for the United States but for the entire global economy.

USA. Dispute over raising the debt limit

The solution to the problem is apparently simple – Congress must pass a bill to raise or suspend the debt limit, as it has been doing for decades. However, in an increasingly polarized country, few things can be easily agreed.

Republicans, who – also by Democrat vote – tripled the limit over four years and contributed to the country’s debt of almost $ 8 trillion, this time pledge not to lend a hand to the “socialist” funding they say of the Democrat program (including e.g. introducing 3-month maternity leaves and child benefits similar to the 500 plus program).

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Democrats are theoretically able to suspend the quota without Republican votes via a budget bill, but congressional rules make this a complicated task. In addition, as Senate Democrat leader Chuck Schumer said, the party wants Republicans to help it “solve the debt crisis they created”.

This is not the first such crisis around the limit, although the first serious case came only in 2011. All of them have ended in a compromise so far, although it was not without consequences – the dispute in 2011 ended with a reduction of the rating of US bonds by the S&P agency and drops on the stock exchange . Goldman Sachs assessed that this year’s crisis seems “more risky than usual”.

In the face of recurring crises, many economists are in favor of a complete abolition of the debt ceiling (Poland and the US are one of the few countries where such a limit exists) – Yellen also called for the same on Thursday. But because it’s politically difficult, less conventional solutions are gaining ground.

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A trillion dollar platinum coin

The most discussed solution is the most bizarre: the ministry of finance minting a platinum coin with a face value of a trillion – or two, or a trillion – dollars. This coin would then be deposited with the Federal Reserve and the amount credited to the treasury account, allowing for further expenses. The author of the idea in 2011 was the lawyer and blogger Carlos Mucha, who noticed that the 1996 act on minting commemorative platinum coins gives the Treasury the opportunity to mint any number of coins of any denomination.

– I think that many experts who were initially skeptical of this idea have now changed their view of the coin considerably. They just saw that the debt crises keep coming back, with no real solution on the horizon, says Prof. Rohan Gray, professor of law at Willamette University in Oregon. Gray admits that the coin is an absurd and “crazy” idea and an “accounting trick”, but for him it is an absurd solution to an absurd problem.

– However “crazy” it is, when the world becomes more and more crazy, the coin seems to be more and more rational idea – he adds.

Gray is one of the hottest advocates of this solution, though definitely not the only one. On Thursday, his support for the idea was reiterated by the Nobel laureate and New York Times columnist, Paul Krugman. in the Washington Post. The idea is also supported by the head of the House of Justice committee, Jerry Nadler.

Although there are doubts as to the legality of this solution, Gray is the author of the legal analysis which states that both the statute and the constitution allow the government to mint the coin.

As for the negative consequences, I think the biggest risk is simply the fact that it is an unproven experiment. But the United States and the history of monetary law is a history full of untested experiments, says the lawyer. – Especially since the financial crisis, we have been observing such experiments all the time – he adds.

Mainstream economists criticize the solution

Despite the idea’s growing popularity, many mainstream economists are skeptical of the idea of ​​minting a special coin. In addition to legal doubts, it is also about its impact on the already high inflation (according to supporters, the effect would be zero, because the money will not go to the real economy), as well as undermining the credibility of the American financial system and bonds.

– This is a kind of thinking in a third world country – assessed prof. Lawrence Kotlikoff of Boston University, quoted by AFP. According to him, the idea is “irresponsible” and may raise inflation. In turn, according to Philip Wallach of the American Enterprise Institute think tank, minting a “magic” coin would shake the dollar and would be “a great way to convince people that the dollar is not such a great currency.”

An expert cited by CNN added that there are possibly better and “boring” ways to circumvent statutory restrictions. But for the supporters of the idea related to the so-called modern theory of money, the controversy of the platinum coin is an advantage, not a disadvantage.

“I think the coin has a remarkable positive potential to provoke a long-needed public discussion about what money really is, how it works, and how we want it to function to improve society,” says Gray.

According to CNN on Friday, the idea of ​​minting a platinum coin was taken into account by the White House, but so far it has been rejected. This does not shake the faith of the supporters of the solution.

“I really believe that one day it will happen and that we are closer to it today than ever before,” noted Bloomberg columnist Joe Weisenthal on Twitter.

Main photo source: Shutterstock



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