After the U.S. narrowly avoided the fiscal cliff as 2013 began, many had hoped that the debt ceiling issues would be resolved. But as of the open of 2013, the country stares at a debt pile of more than $16.4 trillion–higher than total GDP. This has led to all sorts of unconventional theories and schemes for getting ourselves out of debt, one of which involves the minting of one or several trillion dollar coins made of platinum [for more platinum news and analysis subscribe to our free newsletter].
The Trillion Dollar Coin
There have been some far-fetched ideas for solving debt issues in the past, but this one certainly takes a stab at the top spot. Here’s how it would work. Normally, there are limits set on how much paper money the United States can circulate, as well as rules that regulate gold, silver and copper. But, there is a grey area when it comes to platinum coins, as they are often used for commemorative mintings. For a more in-depth explanation of the laws and codes that go behind this, Wealth Wire has a great piece on the subject.
This leniency for platinum would theoretically allow for the printing of one or more trillion dollar platinum coins, which the government would then use to pay off national debt. But it is not as easy as simply getting the presses rolling, as it would first have to be determined whose face would be on the coin. Our vote for a front runner is JFK, but there are certainly other candidates to choose from. Of course, if the government can simply create money out of thin air with no ramifications, why do we pay taxes and what is the use of organizations like the IRS?
While the idea may seems crazy at first, a number of big names are touting the idea as a realistic solution. Paul Krugman has been one of the biggest pundits of the idea along with a number of members of the left wing. The issue is equally as heated in the political and financial world, as it falls at the feet of Congress whether or not this becomes a reality.
The Trillion Dollar Impact
Now comes the tricky part: trying to figure out exactly how this coin would impact the economy, inflation and the greenback. With a lack of history on trillion dollar coins (save for some hyperinflation economies), it is nearly impossible to predict what would happen should this extremely unlikely scenario ever play out. But it can be said with reasonable certainty that creating $1 trillion out of thin air would have a serious impact on inflation and a dilution of the money supply.
When it comes to money dilution and injection, few countries do it better than the United States, as evidenced by four separate quantitative easing programs. Those policies alone have been a major cause for concern when it comes to inflation, as some economists feel that the long-term impact could be quite unpleasant. But if a few hundred billion in QE programs got the nation up in arms, several trillion appearing out of thin air will be even more dangerous [see also Ending QE Could End Gold's Bull Run].
Should this idea ever actually come to fruition (again, very unlikely), many investors will turn to gold to ride out the storm. Platinum may seem like a front-runner, but it’s not as if the coin will contain $1 trillion worth of platinum; it will simply use this metal due to a grey area in U.S. law. Gold was one of the best performers throughout the various quantitative easing programs over the years, and there is little doubt that it would surge in the face of this monetary creation. All that remains is to wait and see which wild idea Congress is able to actually agree on and execute.
Disclosure: No positions at time of writing.