Social and even traditional media are abuzz with discussion of a supposed solution to the problem that the U.S. government is soon to max out its credit card (the “legal debt limit”): the U.S. Treasury would mint a platinum coin with a face value of $1 trillion, sell that coin to the Federal Reserve, and then use the proceeds of sale to pay government expenses, thereby obviating the need for more borrowing. See the Twitter messages organized under hashtag #mintthecoin for reference.
Frankly, this idea is so embarrassingly stupid, so self-defeating, and so devoid of critical thinking that I am astounded it is the subject of serious conversation, even if it were legal, which it isn’t. And please, do not refer me to 31 USC § 5112. I’ve read it already, including paragraph (k), and it doesn’t give the Secretary of the Treasury the power to create seigniorage from the minting of platinum coins. Sure, he could create a platinum coin with a face value of $1 trillion, but unless that coin consisted of $1 trillion of platinum bullion, he couldn’t sell it to the Fed for anything other than its bullion value. And since the Secretary of the Treasury has no way of getting his hands on $1 trillion worth of platinum, much less of making a coin out of that much metal, this idea is not just moronic, but null and void.
But, just for the sake of argument, let us suppose for a moment that the Secretary of the Treasury really could create a phony $1 trillion platinum coin for the cost of a piece of bubble gum, and could then legally force the Board of Governors of the Federal Reserve (the “Fed”) to pay $1 trillion in Federal Reserve Notes for something worth pennies.
Why on earth would honest, law-abiding, sentient beings want him to do so? The Fed doesn’t have a trillion dollars, so would have to create the money out of thin air, which would cause the value of all money to fall against the value of real goods and services in like proportion. Those few who are nearest in time and distance to the creation or injection point of this new money would benefit by being able to purchase goods and services before prices rise for everyone else. The vast majority would suffer as prices rise in relation to their incomes and savings.
At moments like these I’m even more disgusted that government schools force students to recite the socialist Pledge of Allegiance. Had these same schools a sincere interest in the welfare of their students, they would have been teaching them instead about the evils of fiat money, starting with Bastiat’s superb essay on the subject.
But let’s play along with the idiocracy and suppose even further that printing money out of thin air really is a good idea. Then, pray tell, why stop there? Why not make a $25 trillion platinum coin for the cost of a piece of bubble gum, sell it to the Fed, and use the proceeds to pay all of the federal government’s expenses?
While we’re on the subject, why don’t we create platinum coins every time our bills, notes, and bonds mature, sell them to the Fed, and use the proceeds to redeem the bonds? Why pay interest on debt, which is now one of the biggest expenses in the federal budget, when we can just sell phony coins to the Fed? Better yet, since the Secretary of the Treasury has the authority to redeem all U.S. Treasury notes prior to maturity, let’s sell a platinum coin to the Fed having a sufficient face amount to redeem them all now and save all the interest on those securities from this point forward.
The idea that a $1 trillion platinum coin will right the fiscal ship of state is fallacious and foolish. There is no such thing as free money. It is time for those who advocate this absurdity to grow up and get a grip on reality.