Through a hypothetical Oval Office meeting, a Yale law professor describes a platinum solution to the debt ceiling problem. The basic idea is that if Treasury can get the money to cover government spending without borrowing then it does not need to exceed the debt ceiling maximum. How? Just use 2 platinum coins.
At this hypothetical meeting, Secretary of the Treasury Geithner explains to the President, Vice President and Harry Reid, that an obscure provision in “31 U.S.C. Section 5112(k) says that we can print platinum coins in any denomination at our discretion…”
Geithner continues, “So we told the Mint to make a couple of trillion dollar platinum coins. Then, if the President gives the order, the Mint deposits the two coins in its account at the Federal Reserve. The coins are legal tender. We direct the Federal Reserve to move this money into the Treasury’s accounts, and we are up around two trillion dollars.”
That means the Treasury has an extra $2 trillion to spend and does not need to have the debt ceiling raised.
While no one takes the idea seriously, it could happen.
Please note that Bloomberg says Secretary Geithner has indicated he will be leaving Treasury before the next debt ceiling crisis strikes. He has already notified lawmakers (posted here at econlife) that we have hit the ceiling but not to worry because he can manipulate spending for approximately 2 months to avoid a default. And by then, he will be gone.
One question: Whose picture should appear on the coin?
A 2009 $100 Platinum Coin From the US Mint:
A Platinum Coin Can Have Its Face Value Determined by the Treasury
Sources and Resources: Since Yale Law Professor Jack M. Balkin described the idea here in his hypothetical Oval Room meeting, it has spread through countless blogs and new articles. A summary of the comments on the platinum coin solution is here and recent articles from The Washington Post and Businessinsider are here and here. For my information on Secretary Geithner’s departure, I used this Bloomberg column.
Note: The title of this note has been slightly edited.
Posted by: adminEcon
Tags: $1 trillion platinum coin, borrowing, debt ceiling, deficit, Jack Balkin, President Obama, Timothy Geithner, US debt, us mint, US Treasury, Yale Law School
Secretary of the Treasury Geithner just sent Senate Majority Leader Harry Reid a letter.
Noting that in 5 days the US will again have hit the debt ceiling, Secretary Geithner explains that actually, we might have an extra 2 months. In an appendix to his letter, he outlines 4 types of “extraordinary measures” that will let us avoid a debt default for awhile. He adds though, that he is not sure how long he can stretch it because of the uncertainty created by the current negotiations over tax increases and spending cuts. (Ironically, no Congressional tax and spending deal means more time to get a new ceiling.)
Where is the debt ceiling? $16.394 trillion.
Where were we on December 26th? $16.027 trillion.
In 1917, Congress decided it could not keep track of every U.S. loan. So, to maintain some control over national finance, they said, “We will decide the maximum amount the U.S. can borrow.” And, from that day onward, whenever necessary, they voted to increase how much the U.S. could borrow. Since 1962, the U.S. Congress has raised its debt ceiling 76 times.
Sources and Resources: Here is Secretary Geithner’s letter and the Treasury Department daily update of US debt totals. For some debt history, John Steele Gordon’s Hamilton’s Blessing The Extraordinary Life and Times of the National Debt is wonderful. Also, this CNN article and these these econlife posts, Debt Ceiling 101 and Looking at the Debt Ceiling, provide some background and some of the above history.
Posted by: adminEcon
Tags: Alexander Hamilton, debt ceiling, deficit, federal budget, federal debt, fiscal cliff, Harry Reid, John Boehner, Nancy Pelosi, recession, Second Liberty Bond Act, Timothy Geithner, treasury
For laughter and economic insight, the following are wonderful.
A Cartoon: From gocomics.com, a very hypothetical illustration of “The First Economist.”
A Daily Show Excerpt: Treasury Secretary Tim Geithner’s problems with selling his house.
The Economic Lesson
Some serious reading that relates to this economic humor might include Paul Krugman’s excellent NY Times Magazine article about saltwater and freshwater economists. As the cartoon says, “Um…It didn’t work…again…But the theory is still sound.”
And, for more background about the housing crisis, here, through their purchase of “toxie,” NPR’s Planet Money reporters tell the whole story.
An Economic Question: How would you interpret “the first economist” cartoon?