Did you hear the one about Zimbabwe and the United States? Zimbabwe called, it wants its trillion-dollar currency ideas back. The fiscal cliff soap opera may be on break for a couple months, but there are plenty of other drama shows set to play out in Congress over the coming weeks.
The U.S. started the new year by hitting its record debt ceiling of $16.394 trillion. In the final days of 2012, Treasury Secretary Geithner sent a letter to Congress warning of the inevitable event and said the Treasury Department will take “extraordinary measures” to provide approximately $200 billion in headroom. However, the measures will only give the bobble-heads in Washington about two months of wiggle room.
The desire to raise the debt ceiling once again is shaping up to become another political rhetoric battle between Republicans and Democrats. President Obama recently said, “While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills they have already racked up. We can not not pay bills that we have already incurred.” However, last year’s debt ceiling sideshow proves that Congress can still do plenty of finger-pointing before deciding to raise the so-called limit. Contrary to previous statements from Geithner, it also proved that America’s was not immune to downgrades.
In order to turn the volume down on the never-ending drama in Washington, an idea that began a couple years ago is turning into a movement. Due to a law intended to allow the Treasury Department to produce commemorative coins for collectors, the Treasury could theoretically mint a platinum coin with a face value of $1 trillion.
There are rules that hinder its use of bills and currency made from other metals, but platinum coins appear to be fair game in any denomination.
In theory, Geithner could order the West Point Mint to produce a one ounce $1 trillion platinum coin and have it sent to the Federal Reserve. Since it is legal tender, the central bank would be obligated to accept it. The coin could then be used to wipe out $1 trillion in debt or even be credited to the Treasury’s at the Fed, allowing Washington to deploy another $1 trillion without issuing more debt.
The idea appears to have started from a commentator named “Beowulf,” who writes at the Monetary Realism. Other outlets such as the Washington Post and Bloomberg have also jumped on the idea, or perhaps threat that could be used to speed up the coming debt ceiling hike. On Thursday, a petition was started at the White House by Graham K. to “avert the absurd-yet-imminent debt ceiling faceoff in Congress.”
If this all seems ridiculous, you are right. The idea that Turbo Timmy could solve the debt ceiling debate with a one coin to rule them all strategy belongs in fantasy land. Even if the platinum coin was used amid Washington gridlock, it would only be another can kick until another miracle coin was needed for the next trillion dollars of spending or debt. Furthermore, if you think China and other countries are buying large amounts of gold to diversify away from the greenback now, can you imagine what their reaction will be if we start minting trillion dollar coins?
Even more ridiculous is the notion that America has a true ceiling to hit. At this point, the national debt limit should really be called the national debt target. Congress seems to have no problem hitting the multi-trillion-dollar figure on a regular basis. Last year, the debt target was raised $1.2 trillion to its current level. Since it was first implemented in 1917 at $11.5 billion, the debt target has been raised 75 times. There is little doubt this time will be different, with or without a $1 trillion coin threat.
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