by Greg Barker
Tuesday, 12
October 2021
Explainer
10:43

A $1 trillion platinum coin won’t fix America’s problems

It is peak late-stage capitalism
by Greg Barker
‘Next up: a beautiful $1 trillion platinum coin — going once, twice…’ Credit: Getty

Every time it seems like late-stage capitalism might face its impending doom, our beloved elites pull out another surprise.

This time there is (yet another) debt-ceiling feud in America, which, if left unresolved, would lead to the first sovereign default in America’s history. Notable economic figures, such as Joe Weisenthal and Paul Krugman, have therefore proposed a radical solution: to ignore the pesky debt limit and finance emergency government spending by minting a whopping $1 trillion platinum coin.

With every new presidency we go through this pathetic ‘will they, won’t they?’ charade. It’s nothing more than a political squabble, where the party out of power attacks their rivals for wanting to push the U.S. Government further into debt bondage, even though both Democrats and Republicans have helped amass national liabilities of over $28.8 trillion.

Sometimes it’s a close call, but the outcome is always the same. Eventually, the elites remember their financial and political futures are tied to fragile speculative assets supported by the Federal Reserve and ballooning deficits. If any default were to occur, the value of those investments would torpedo. As if by magic, they settle their differences, and Congress increases the debt ceiling.

As expected, last week, the Senate voted to raise the limit by $480 billion. But this is only a stop-gap solution for the next few months, and if hits another stalemate, #MintTheCoin is the proposed quick-fix for America to keep financing itself.

The platinum coin law, which Congress passed in 1997, would allow the Treasury Secretary to mint and issue a trillion-dollar denominated coin without Congress’s approval:

The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.
- Title 31 of the United States Code
 

This law was introduced so that Government could avoid having to raise funds through issuing bonds (borrowing money from the private sector and foreign entities). But there’s a major problem with how this loophole will help fund any future U.S. government shortfall. As Marcelo Prates points out, once the coin is struck and deposited into the Treasury’s Federal Reserve account, the authorities can’t spend it. That’s because Section 14 of the Federal Reserve Act prohibits the central bank from buying any assets other than U.S. Treasuries.

As usual, a financial crisis — say, failing to raise or suspend the debt ceiling — is the sole scenario that will enable these rules to change. If trillion-dollar metal coinage becomes the only way to rescue America’s debt colossus, central planners will do whatever’s necessary to get the required legislation to pass.

And the people, without much deliberation, will likely support it. In this period of relative peace, the authorities can easily convince us to get behind any policy or emergency measure that preserves the status quo. As long as ultra-loose financial conditions prevail, most kinds of monetary alchemy — a quadrillion-dollar gold coin, Bitcoin-backed government bonds, or even a trillion-dollar coin (that’s not really worth a trillion dollars) — will receive the nation’s seal of approval.

Only when the cheap money era reaches its abrupt end will the fun stop, and we’re approaching that moment. The world’s number one superpower needing a trillion-dollar metal coin to bail itself out is more than an adequate late-stage cycle indicator.

Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at @concodanomics.

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Chris Wheatley
Chris Wheatley
11 months ago

The first paragraph says it all. Our politicians only care about impending doom if it happens when they are in power or when they can’t blame it on somebody else.

Galeti Tavas
Galeti Tavas
11 months ago
Reply to  Chris Wheatley

They will happily kick the can down the road till they finally walk us off a cliff as we chase it…

But the cliff is coming.

LCarey Rowland
LCarey Rowland
11 months ago

Surely you jest!
It’s the Emperor’s new Coin, as all citizens will be disinclined to call it what it is, until a clueless child disrupts our parade, exclaiming “Look, ma, the money won’t pay for anything worth having!”

Galeti Tavas
Galeti Tavas
11 months ago
Reply to  LCarey Rowland

What backs that paper money? Those numbers on your account statement? Same thing, nothing.

Julian Farrows
Julian Farrows
11 months ago

Looking forward to the new Netflix series where a rag-tag band of lovable rogues steal the trillion dollar platinum coin from deep within the Federal Reserve’s vaults.

Andrew Roman
Andrew Roman
11 months ago

Is massive debt uniquely American?

Galeti Tavas
Galeti Tavas
11 months ago
Reply to  Andrew Roman

NO.

The only reason the world keeps on working is every Nation is in the same boat. All are leveraged (debt laden) beyond ever being able to pay it back. All must keep in the game or it collapses. No one dare trigger the collapse of anyone else or the conflagration will take all.

jckcalhoun
jckcalhoun
11 months ago

Politicians only care about themselves and their power. we need a reset: retire them all, and term limits. it’s never about the citizenry. We are all in trouble.

Galeti Tavas
Galeti Tavas
11 months ago
Reply to  jckcalhoun

A Great Reset???? The WEF (World Economic Forum, and Claus Schwab) says YES.

Galeti Tavas
Galeti Tavas
11 months ago

OK, everyone needs some George Gammon ‘White Board’ youtube videos on how Central Banking works https://www.youtube.com/watch?v=y-Ru4DCT5aE fun and enlightning, I recomend watching several if this does not become clear, as finance is utterly crazy, and is pure debt based faith being the foundation the entire global economy sits on…. Real Wizard of Oz stuff.

But the real thing is CBDCs, Central Bank Digital Currency. This breaks the entire arcane system of Central Banking which the modern world has built on for a thousand years.

See – the Treasury cannot make money – it makes Bonds (Treasuries) which it then sells to foreign, domestic, and Central Bank buyers. Now the Treasury has $$$ from the sale of these Treasuries to spend on Government programs. And what is a Treasury?

It is an IOU of the government promising to repay with some interest in the future. The buyers use them as reserve Currency which they then multiply using ‘The Reserve Banking System’ if they are an other Central Bank, or a private Bank… ONLY BANKS CAN MAKE MONEY – which they do by ‘Loaning it into existence’. So getting weird, isn’t it?

Anyway – say you buy a house for $100,000 with a mortgage. The bank does not have a chest of money – it uses magic to loan the money into existence. First it enters your Note (legal document of promise to pay and when and how much, secured by the house and your credit score) on its ASSET side of the ledger. Now it has $100,000 of assetts! Cool, and now it can create a Liability of $100,000 to pay your house cost to the old owner. $100,000 has just been loaned into existence. (How the seller can cash the check is another story, but as weird)

The thing is, if the Central Banks create digital currencies then everyone needs a account direct with the Central bank, and not a private one. The central bank no longer needs an asset to offset its liabilities – it can just pay out $ into any account, in any amount. The Treasuries are not needed anymore, MMT has arrived. No more balance sheets with every liability having to be offset by an asset.

This coin is similar sort of, and is a way of getting an asset without liability, it just coins the money into existance – but as is pointed out, it has legal issues – so still there has to be this Treasury issuing Treasuries on orders from the Legislature, and selling them to get money – but Not For Long, once the CBDCs arrive, and we bank with the Fed, they can just create digital Dollars from nothing. Governments do not even need taxes because they are no longer selling Treasuries they have to be buying back with interest. Money becomes mere 0s and 1s, all on your phone. It is what ever the government says it is, and how much, and to whom.

A side issue is with every fiance penny going through the Government you will have a ‘Social Credit Score’, and they will own you – they can make your digital wallet stop working, add and take, time money out so you must spend, and make sure you are obeying the law.

Think of covid, no vax and your digital wallet will not work on transport, in a bar – and your friend cannot either, as your wallet is always Geo-located, so they know you are there together….

Liked the article finally covering the weirdness of the modern economic system – More would be great – remember, Money is ALL, it is everything, and it needs a great many articles because money is the only thing keeping us alive and free and safe. If it goes bad, we are doomed, and the world’s money system is undergoing the greatest Paradigm shift it has since inception 5000 years ago. (which is when ‘Banking’ began). Digital Central Bank Currency.

James Joyce
James Joyce
11 months ago

If business men and women ran their businesses, particularly the accounting, the way the government is run, they would be facing prosecutions from the Serious Fraud Office. The people who do this have no understanding of what real money is, let alone accounting, though they are very loose with OPM (Other People’s Money).
This is, inter alia, why I generally favour people who are personally frugal when they run for office; I hope they will spend public money as they spend their own. Regrettably these people are few and far between.
The US has lost its financial mind.