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 

The idea of minting a trillion-dollar coin originated in the most unlikely of places – the comment section of a blog in 2010 by Warren Mosler, who is a proponent of an unconventional monetary policy called the Modern Monetary Theory. Ever since then, the idea has become quite popular among a section of economists and monetary policy experts. 

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 

The debt ceiling crisis – in addition to the ongoing inflationary pressures and the geopolitical uncertainty caused by the war in Ukraine – is expected to cause precious metals to increase in value. 
Also, with the Federal Reserve indicating that it might become less aggressive with its rate hikes, the US Dollar might not remain as strong as it is now. The combination of the aforementioned factors can cause precious metal prices – gold prices in particular – to go up in the coming months. It is exactly what happened during the 2011 debt ceiling crisis. 
In 2011, gold breached the $1,900 an ounce ceiling for the first time –thanks largely to the uncertainty caused by the debt ceiling crisis. As we get closer to June (which is when the federal government could run out of money if the debt ceiling is not raised), gold prices might hit a peak in the short term and stabilize once the ceiling is raised. 
The demand for silver and platinum is also expected to increase significantly in the coming months. Silver’s applications in the green energy industry – from silver loadings in electric vehicles to photovoltaic cells – is one of the biggest reasons why its demand is expected to grow in the future. 
According to the World Platinum Investment Council, the demand for platinum is estimated to grow by 24% in 2023, whereas supply is expected to only grow by 3% – due to a decline in total mining supply as well as refined mine production. Industrial demand for platinum is one of the biggest driving forces that can cause platinum prices to go up significantly this year.

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. 

J. Rotbart & Co – Your Trusted Choice for Precious Metal Investments

Investing in precious metals is a time-tested strategy to diversify your portfolio and build long-term wealth. At J. Rotbart & Co, we make investing in precious metals easy. With extensive experience in buying, selling, assaying, financing, transporting, and storing precious metals, we are best equipped to handle all your precious metal investment needs. 
We bring unmatched expertise and professionalism to the table and can offer personalized solutions to meet your unique investment needs. Use our convenient online contact form to schedule a free consultation with our precious metals experts.  
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