“When I was but a little child, I had a dream. A simple child’s dream. And all that simple child ever wanted was to get his hands on all the money in the world…” — Gen. Bullmoose, from the movie Li’l Abner.
In the beginning, currencies were backed by precious metals, generally silver and gold. However much gold was in the treasury, that was the limit of currency in circulation. However, governments always need more money, so eventually countries go off the gold standard. Roosevelt not only took us off the gold standard in 1934, he made the owning of gold illegal. Nixon followed that up by taking us off the silver standard in 1964. The dollar is no longer backed by anything, so the treasury department is no longer limited to how much money it can print. Their only consideration now is balancing the maximum amount of currency they can print without causing a corresponding increase in inflation.
President Obama has stated very clearly that he wishes to do away with all limitations placed on the federal government regarding how much it is permitted to borrow. Once again, Congressional Republicans are promising to use the threat of national default in the vain attempt to force the president to cut spending. And once again, this won’t work, since the president doesn’t want to cut spending, however Democrats have come up with a honey of a counter offer. This could only have come from someone who slept through Basic Economics.
Rep. Jerold Nadler (d-NY) is spearheading an effort to convince the Federal Reserve to mint a trillion dollar platinum coin to pay down the national debt. In a recent interview, Nadler stated, “I’m being absolutely serious. It sounds silly, but its absolutely legal.”
Once upon a time, the treasury produced $500, $1,000, $5,000, and $10,000 bills. Amid worries about counterfeiting and possible use by the drug industry, they were gone by 1970, and the treasury is now prohibited from printing any bills greater than $100. However, taking advantage of a law which allows the Federal Reserve to provide coin collectors with a never-ending flow of new designs in precious metals, Rep. Nadler has discovered (he says) there is nothing in the law to restrict the size of these denominations. Hence the trillion-dollar coin, something which will provide the solution to a problem that has plagued governments all the way back to the pharaohs — how to appear to cut spending without actually doing it.
Of course, Nadler couldn’t continue this without the backing of a prominent economist, and since Paul Krugman wasn’t doing anything else, he naturally joined the chorus. Krugman said that minting the coin is an option that’s “silly but benign,” while the alternative — another protracted fight over raising the debt limit — would be “equally silly but both vile and disastrous.”
“The decision should be obvious,” he writes. “Mint the coin.” (I’m convinced that those who show an interest in economics are forced to take a test. Those who pass go on to bigger and better things. Those who fail become economists.)
Now, as to the size of the new coin, platinum was selling for $1563/oz this morning, or, since metals are measured in troy ounces, $31,260/pound. To create a bullion coin worth a trillion dollars would require a slab of platinum weighing about 16 tons. But I’m being unfair, since, while bullion coins are usually 99+% pure, coinage is usually 90%. So, assuming the platinum will be alloyed with a light metal, a 90% coin would weigh in at around 14.5 tons. The current collector’s coin, the $100 Platinum Eagle contains an ounce of platinum and is 1.5″ in diameter, so if we use that as a guide, the new one-trillion-dollar coin would have a diameter of about 158 miles, or roughly the size of large asteroid.
Or, we can just do what governments have done for years, and simply declare the new coin, whatever its size, is actually worth one trillion dollars. This wouldn’t set too well with the people that hold all our debt (like China,) but just think how high the self-esteem level will rise in Washington when they can claim “we balanced the budget, and it only took ten minutes.”
Even Roosevelt wouldn’t have liked this one.
Naturally, Obama’s picture would be on the new coin. Although federal law states that before someone’s likeness can appear on a coin, he must have been dead for at least two years, legalities haven’t stopped the administration before, and they won’t now.
In writing this I began to wonder what the new coin would look like. There have been no designs put forward for the new coin, so I would like to humbly submit one which I came up with last night. The Latin inscription on the back translates as, “in golf there is truth.”