The trillion dollar coin

The weirdest idea for solving the debt crisis comes from Ezra Klein of the Washington Post:

Obama could always just solve the crisis with a pair of magical platinum coins. Sure, that sounds preposterous, but Yale’s Jack Balkin argues that this is actually a perfectly legal strategy. Here’s the logic: Under law, there’s a limit to how much paper money the United States can circulate at any one time, and there are rules that limit how many gold, silver and copper coins the Treasury can mint. But the Treasury is explicitly allowed to mint however many platinum coins it wants and can assign them whatever value it pleases.

So the Mint makes a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Federal Reserve moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations in the near term without issuing new debt. If the Fed was worried about all that newly created money being pumped into circulation, it could always counteract the inflationary effects by selling off the $2 trillion in securities it owns from quantitative easing (thereby taking an equivalent amount of money back out of the economy). Problem solved. Right?

Well, sort of. The interesting thing about the platinum option, as it turns out, is that it actually seems to be on a firmer legal footing than the 14th Amendment approach. The law very clearly states that the Treasury Secretary can mint these platinum coins. He could even adorn them with the face of House Speaker John Boehner (R-Ohio) if he fancied. The trouble, of course, is the politics. Does Obama stage a press conference where he holds up the two large coins and announces what he’s doing? It’d be hard to see how he could do that with a straight face. (When I tried calling various market observers to get a sense of how Wall Street might react, responses ranged from “I don’t really want to talk about this” to actual laughter.)

via Can a giant platinum coin save our credit? – Ezra Klein – The Washington Post.