Can A Trillion Dollar Platinum Coin Resolve The Current Debt Ceiling Crisis?
Published on 31st March 2023
The US is currently in the midst of a debt ceiling crisis, which has the potential to seriously damage the US economy which is already not doing well. With extraordinary measures being put in place by the Treasury to prevent the government from defaulting on its debt, there is a renewed debate on whether the much-talked-about trillion-dollar platinum coin might provide us with a way out of the current challenges.
The idea of the trillion-dollar platinum coin first gained traction during the 2011 US debt ceiling crisis. The concept became more mainstream in 2012 but was then rejected by the Federal Reserve and the Treasury in early 2013.
Why the Debt Ceiling Matters
The debt ceiling – also referred to as the sovereign debt limit – is the limit set by the US Congress restricting the amount of debt that the government can incur. The government reached its current debt limit of $31.4 trillion in January. Since then, the Treasury has been taking emergency measures to ensure the government pays its bills.
The emergency measures are due to expire on June 5th,by then if the debt ceiling is not raised, the Treasury might fail to meet its obligations, which include Social Security payments, Medicare benefits, tax refunds, and a lot more. It could also cause the government to default on its debt. If this potential situation is not avoided, it can cause irreparable harm to the US economy as well as the rest of the world.
Even if the worst-case scenario of a sovereign default is prevented, which it most likely will be, the delay in raising the debt ceiling can have an adverse impact of its own on the economy. Back in 2011, the deadlock between the two parties in raising the debt ceiling caused S&P to downgrade the US credit rating from AAA (the highest) to AA+ (the second highest) which had in turn spurred a selloff in risk assets like equities around the world and had degraded the confidence of investors in the already fragile financial market.
Note: Sovereign credit rating downgrades increase the short-term costs of government borrowing. In other words, the cost of raising capital goes up.
With the Democrats and the Republicans not being able to come to terms on raising the debt limit, some experts such as Nobel laureate economist Paul Krugman, endorse the concept of minting a trillion dollar platinum coin to tackle the debt ceiling crisis.
The Potential Impact of a Trillion Dollar Platinum Coin on the US Economy
One of the problems with minting a trillion dollar coin is that the amount of money will increase by $1 trillion, whereas the number of goods and services will remain unchanged, which can worsen the inflation, which is already the highest in 41 years. It’s estimated that the inflationary impact of minting a trillion dollar coin and adding one trillion Dollars into the reserve would be equivalent to levying a $3,000 tax on every American.
According to Ted Gayer, former Executive Vice President of The Brookings Institution, the very idea of minting a trillion dollar coin would have involved the Fed in direct, off-market, financing of the government, hence compromising its independence.
The Trillion Dollar Platinum Coin Plan – Explained
In 1997, Congress passed a law to allow the US Mint to issue platinum coins of any denomination of its choice and in any quantity. The law was passed to allow the US Mint to generate more revenue through the sale of bullion coins. If the law allows the US Mint to issue coins of any denomination, why not mint a trillion dollar coin and resolve the debt ceiling crisis? This is precisely the question that many are posing right now.
How Does the Trillion Dollar Platinum Coin Plan Work?
The trillion dollar coin plan works in the following manner.
- The Treasury asks the Mint to issue a platinum coin with a face value of $1 trillion.
- The Treasury deposits the coin with the Federal Reserve.
- The Federal Reserve adds $1 trillion to the federal government’s account.
Once it is done, the federal government can use the $1 trillion to meet its financial obligations until the debt ceiling is raised. If it is not raised, the Treasury can ask the Mint to issue another coin to meet its obligations.
How the Debt Ceiling Crisis Affects Precious Metal Prices
Platinum as a Safe Haven Asset for the US Government
The debate on the trillion dollar platinum coin bolsters the investor perception in favor of platinum and possibly other precious metals, such as gold, silver, and palladium. Investors are more likely to see platinum as a safe haven asset for the US government, potentially leading to increased demand and higher prices for the white metal as well as precious metals.
The Bottom Line
The debt ceiling crisis exposes the underlying risks of the US economy. To mitigate the risks and reduce the volatility in your investment portfolio, it’s prudent to diversify by investing in precious metals. At J. Rotbart & Co, we make investing in this safe haven asset easily.
With our expertise in buying, selling, assaying, financing, transporting, and storing precious metals, you can make the most of your investments in precious metals. Fill out this online contact form today to set up a complimentary consultation with one of our precious metals investment specialists.