The US is "seriously" considering creating a $1 trillion platinum coin to write down part of its debt to stop the world's largest economy defaulting as early as next month, according to financial analyst Cullen Roche.
A legal loophole means the US Treasury is able to mint a platinum coin and assign any value to it. Photo: Peter Macdiarmid/Getty Images
Speaking to the BBC's Today programme, Mr Roche, founder of Orcam Financial
Group and blogger
at Pragmatic Capitalism, said the idea was being taken "somewhat
seriously" in Washington.
"I know it’s been spoken about at the White House and a number of
prominent people, including congressman, are talking about it," he
said.
In theory the US Treasury would mint the coin and deposit it into its own
account at the Federal Reserve, which would allow the government to write
down or cancel $1 trillion of its $16.4 trillion debt pile.
The Treasury began shuffling funds in order to pay government bills after the
country hit its $16 trillion debt limit on December 31. However, the
Treasury's accounting maneouvres will last only until around the end of
February as the latest fiscal
cliff deal gives US
politicians two months to raise the debt limit before the country
defaults.
The idea, which was raised last year, has been floated by several financial
analysts in the States over recent days as Congress and the government
approach the key fiscal vote.
Mr Roche said the idea was an "accounting gimmick", but noted it was
just "one really silly idea [being used] to fight another silly idea".
"The idea of the US willingly defaulting on debt is beyond crazy," he said.
"We started kicking the idea around a year ago and it was really a joke and the fact it’s become something sort of serious, well it’s a sad state of affairs that it’s become so dysfunctional in Congress that this is something we’re having to resort to."
Writing in his New York Times blog, economist Paul Krugman, said that while he did not expect the Treasury to go ahead with this "gimmick", there could be a case for it.
"This is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand," he said.
Mr Roche also did not expect the Treasury to go ahead and mint a $1trillion coin, but said President Obama could use it as threat.
"I don’t think it’s something that will end up being used but I think that if it comes down to it we could potentially see the President use this as something where he says, 'look if you’re going to threaten to default on debt then I’m going to threaten to use the coin loophole'."
There are limits on how much paper money the US can circulate and rules that govern coinage on gold, silver, and copper.
But, the Treasury has broad discretion on coins made from platinum, and in theory, it is allowed to mint a platinum coin and assign any value to it.
However, it is worth noting that this was intended to issue commemorative coins and not as a fiscal measure, Mr Krugman said.
"The idea of the US willingly defaulting on debt is beyond crazy," he said.
"We started kicking the idea around a year ago and it was really a joke and the fact it’s become something sort of serious, well it’s a sad state of affairs that it’s become so dysfunctional in Congress that this is something we’re having to resort to."
Writing in his New York Times blog, economist Paul Krugman, said that while he did not expect the Treasury to go ahead with this "gimmick", there could be a case for it.
"This is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand," he said.
Mr Roche also did not expect the Treasury to go ahead and mint a $1trillion coin, but said President Obama could use it as threat.
"I don’t think it’s something that will end up being used but I think that if it comes down to it we could potentially see the President use this as something where he says, 'look if you’re going to threaten to default on debt then I’m going to threaten to use the coin loophole'."
There are limits on how much paper money the US can circulate and rules that govern coinage on gold, silver, and copper.
But, the Treasury has broad discretion on coins made from platinum, and in theory, it is allowed to mint a platinum coin and assign any value to it.
However, it is worth noting that this was intended to issue commemorative coins and not as a fiscal measure, Mr Krugman said.
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