It's good that the trillion dollar (or in some variations, as much as $60 trillion) platinum coin proposal is getting serious consideration. I was struck by the idea during the last debt ceiling go-round. It got little attention then, now the mainstream has picked up on the idea.
I think it would solve Obama's immediate and long-range problem with Republican hostage takers; if he had the guts (or desire) to do it, the Republicans would be reduced to fulminating helplessly and maybe even threatening impeachment, but they couldn't threaten to wreck the global economy. They'd be rendered impotent and made to look foolish in the bargain, and that's a good thing in itself. Personally, I don't think Obama would ever do this -- it's completely the opposite of his style, which is to seek accomodation rather than victory (except in elections) -- which is a shame. But the trillion dollar coin proposal is of interest anyway, because it has the potential to make people realize that the whole idea of the government debt "crisis" is a nonsensical artificial construct. It is potentially a game changer that would allow us to adopt a more rational fiscal policy. Follow me below the fold and I'll explain my thinking.
The proposal is simple: Mint a platinum coin with an arbitrarily large face value. Deposit it in the Government's account in the Fed. Use the resulting funds to pay off debts as they become due. No need to raise the debt ceiling, as it is no longer necessary to borrow funds for cash flow to service existing obligations.
There is no question this is legal and follows accepted government accounting and financial requirements. But think about the implications: If the Government can do this in this instance, why not in general? Why does the Federal Government have to borrow money when it can make money at will? Why does it even need to collect taxes?
The answer to the first question is, it doesn't. That is, there is no need for the Government ever to borrow money. We have a fiat currency system, not tied to any other physical or financial asset. We borrow dollars and pay the debt with dollars. We make dollars. There is a reason for taxes, but it's counterintuitive. They are not necessary to fund the Government. Again, the Government can make all the dollars it needs. It doesn't need taxes for funding. (If you pay your tax bill in cash, the IRS credits your account then shreds the cash.) Instead, taxes are required to give the dollar value; that is, to maintain the Government monopoly on legal tender. You insist on getting paid in dollars because you need to pay your taxes in dollars. Even if you don't pay taxes, the people and businesses you deal with do, so they require you to use dollars to pay your bills.
In other words, dollars have no inherent value. They are a means of keeping track of your economic position. Money -- a modern fiat currency like the dollar -- is strictly a medium of exchange. It is much easier to price everything in dollars than to figure out how many chickens an hour of labor equals.
Aside from the fact that it's the law, I think there are two reasons the Government still borrows money (issues bonds and T-bills). The first is just a relic of the past when the dollar was pegged to gold. When that was the case, it actually made sense for the Government to borrow money if it didn't have sufficient gold reserves. (This is an oversimplification but good enough for the current purpose.) And you could argue that the debt limit perhaps made some sense then, as a constraint on the Government borrowing too much. People still think in those terms and it's difficult for lots of people to grasp that money really doesn't have any inherent value, so the tradition has survived. In addition, the Government debt market is a subsidy to (primarily) wealthy investors; it gives them a safe place to keep their money.
But it's not necessary. Whatever spending level Congress authorizes, the Government by definition has the inherent ability to produce dollars to spend. (Note that this is not saying Obama has the power to spend unilaterally -- he does not, only Congress can authorize spending. But once spending is authorized, it is nonsense to say that the Government doesn't have enough money to spend at the authorized limit.)
Once this is grasped by the public -- and it will be hard to explain, and hard to throw off longstanding notions about spending and debt -- all the angst about Government spending should vanish. People still think of the Government like a family; "We can't spend what we don't have, if we overextend our borrowing we'll be unable to service the debt and go bankrupt." The beauty of the trillion dollar coin proposal is that it proves these constructs are artificial constraints.
My economist friends will raise inflation at this point. It is true that too high a level of cash in circulation can lead to inflation. We must be careful not to reach that level. But right now, with a depressed economy and 7.8% unemployment rate (more realistically probably 15%), we don't have that worry. We need more cash in circulation, not less. We need more Government spending, not less. If Congress were rational, we could spend in the traditional way, that is, by incurring additional debt. But it's highly unlikely Congress will recognize that more debt is good under current circumstances, so the platinum coin is a fallback.
However, as I've said, I personally doubt Obama would avail himself of that option. But the fact that conventional wisdom is coming to accept that it is a viable option shows that the debt limit, and concept of Government debt in general, is an anachronistic, artificial hangover. If the public comes to that realization, it is much easier to resist cuts to social security, medicare, medicaid, or any other government spending. Right now, the oligarchs have convinced the public that entitlements are bankrupting the country. That's not true even accepting the artificial framework we've inherited, for all sorts of reasons beyond the scope of this diary. But what the platinum coin provides is a paradigm shift: Forget that framework, the idea of Government debt bankrupting the country is, literally, impossible. It is not even coherent. There need be no Government debt, unless we want it, and the Government will not run out of money. If you accept the feasibility of the platinum coin proposal, you can no longer deny that proposition.