Tuesday, December 11, 2012

Economist suggests scheme to pay off national debt with a few platinum coins

Welcome to a world where no one, including the government, is willing to pay off debts they incur.  As talks on the fiscal cliff stall once again on Dec. 11, an intriguing suggestion has been made by a university economist to pay off the $16.4 trillion national debt using a loophole scheme involving platinum coins.




Enter the platinum coins. Under current law, the Treasury is technically allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases.

Under this scenario, the U.S. Mint would make a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years — without needing to issue new debt. The ceiling is no longer an issue.

“I like it," said Joseph Gagnon of the Peterson Institute for International Economics. “There’s nothing that’s obviously economically problematic about it."

In theory, this is much like having the central bank print money. But, Gagnon said, the U.S. government would simply be using the money to keep spending at existing levels, so it would not create any extra inflation. And if it did cause problems, the Fed could always counteract the effects by winding down some of its other programs to inject money into the economy.

Is the platinum coin option really legal? Apparently so. - The Bulletin

What this would mean of course, is that the government would mint say 17 platinum ounce coins, giving them the denomination value of $1 trillion apiece.  Then, not only would they print the equivalent cash in a 'sale' of the coins, but after paying off the national debt, and debt owed to foreign and Fed creditors, they would have an additional $600 billion surplus, where Obama can sing to the world the lie that he not only balanced the budget, paid off the debt, but in fact, created a surplus.

We at The Daily Economist figure the Dow would open at 20,000, and Jim Cramer would hail it as the greatest financial move in history... like he did with Bear Stearns.

4 comments:

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