There are some interesting laws regarding the production of coins. One loophole in the law allows for congress to create any denomination of platinum coins, at any point in time, for any reason.
(k) The Secretary may mint and issue platinum bullion coins 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.
31 U.S. Code § 5112 – Denominations, specifications, and design of coins. https://www.law.cornell.edu/uscode/text/31/5112
This law was added to Code § 5112 so that the Secretary could mint collectible coins as they saw fit. Armed with this loophole, the Secretary considered minting a $1Trillion coin.
At this time, the most valuable nominal denomination coins have a face value of $1000.
The Secretary is floating the idea of minting a 1 TRILLION dollar platinum coin. Until our representatives find a solution, this wild idea stays on the table.
The House and Senate passed a $480Billion increase to the debt ceiling. Today they sent the increase to Biden for final approval. We never thought borrowing billions would be the more fiscally prudent option for the US money-management woes.
Is coin creation a viable solution in instances like these? “The idea of ‘fighting an accounting problem with an accounting solution’ is entirely coherent … the debt ceiling itself can be viewed as one big, poorly designed accounting gimmick.” So says Law Professor Rohan Grey in his 2020-2021 Kentucky Law study.
Professor Grey talks obliquely about the problem of money created by fractional lending and the inflation that devalues the newly created money. In our current system, debt creates money for banks to lend. Banks can lend more money than they have stockpiled because accounts receivable are assets. The world financial systems are coming unpinned due to continual increasing debt since 1837 and a slow loosening of banking regulation.
Granted, no person in 1837 could have predicted the economic impact of decades of wars, the multiple financial depressions, the housing crisis of 2008, or the global financial impact of COVID-19. Recessions and wars are expenses that historically increase the amount of national debt. The COVID-19 recession is no different – financially – than any other recession.
Could a $1Trillion coin ease the national financial burden without skyrocketing inflation? Probably not. The creation of money for any reason results in more debt.
Luckily, Professor Grey struck gold with his statement. Financial systems are all accounting. We have some clever accountants in our employ in Washington D.C. When they find an agreement the economy will stabilize.
On that note, thank you for joining us.
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