A strange American plan to escape bankruptcy… a $1 trillion currency! Powered by Investing.com

A strange American plan to escape bankruptcy… a $1 trillion currency! Powered by Investing.com
A strange American plan to escape bankruptcy… a $1 trillion currency! Powered by Investing.com
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© Reuters.

Investing.com – With the debt-ceiling debate dominating headlines in the United States, the idea of ​​minting a $1 trillion platinum coin has emerged, an option that has popped up for the Treasury Department as a way to raise the debt ceiling without bipartisan support.

Once again the coinage plan is gaining traction in some quarters, as a deeply divided Congress makes it more difficult to debate the debt ceiling, with strong arguments on both sides about debt, inflation and the path ahead.

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debt ceiling

According to the Treasury Department, the US is hitting its current borrowing cap of $31.4 trillion. And if the debt ceiling is not raised, the federal government could run out of money available to pay all its bills by June.

The Treasury Department has already initiated some extraordinary measures to continue paying government bills in the past week, including suspending investments in select government accounts.

In a letter to Congress, Treasury Secretary Janet Yellen warned that there was “significant uncertainty” about how long these extraordinary measures could be effective.

“I respectfully urge Congress to move quickly to fully protect the confidence and credit of the United States,” Yellen said in the letter she sent last week.

Bankruptcy escape plan

On issuing the $1 trillion platinum coin, which relies on a loophole that would allow the Treasury Department to mint platinum coins of any denomination and deposit them in the Federal Reserve against the United States’ federal debt, Yellen was very skeptical of that idea.

In an interview with The Wall Street Journal, Yellen said it was unlikely the Fed would approve such a plan, calling the plan a “gimmick.”

“It’s by no means a given that the Fed would do that, and I think in particular that it’s a gimmick,” she said in an interview published on Sunday. “The Fed is not required to accept it, and there are no conditions on the part of the Fed. They are free to do what they do,” she added.

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legal loophole

The minting of a $1 trillion platinum coin is a loophole in the law regulating the minting of coins. The exact wording can be found in Subsection (K) of 31 USC 5112, which governs the “Specifications and Design of Coins”.

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The provision reads: “The Secretary of the Treasury may mint and issue platinum bullion coins and proven platinum coins of such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Minister’s discretion, may specify from time to time.”

In theory, US Treasury Secretary Janet Yellen could order the platinum coin minted and avoid bankrupting the government if the debt ceiling is not raised in time.

It is important to keep in mind that it is not technically necessary to make the $1 trillion platinum coin. It might just take some platinum to be used up, for the US Treasury to allocate any value to it, including $1 trillion or more.

And many Biden administration officials and Democrats are again starting to talk about that option. It is worth noting that this issue was also raised before in the fall of 2021, the last time the debt ceiling was raised.

At the time, Yellen also spoke out, saying she was against the idea. “I’m against it,” Yellen told CNBC in 2021, “and I don’t think we should look at it seriously. It’s really a gimmick.”

This time around, the debate may be more divisive, as Republicans and Democrats are still debating the consequences of inflation and spending after aggressive fiscal policy tightening by the Fed last year.

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