Mint That Coin

While the dramatic New Year’s Fiscal Cliff fiasco has passed, the fat lady hasn’t even begun her vocal warmups. The buck was passed to the 113th Congress, with renewed and misguided fiscal argumentative acrobatics coming to a cable news channel near you in a few short weeks. However, during this political intermission, the kind folks of the internet commentariat have done the job of Congress for them. They’ve found an easy, simple way to avoid a debt ceiling showdown along partisan lines. Their proposal, for those of you who are not as addicted to Twitter and Stocktwits as we are, is that we mint a trillion dollar platinum coin, and deposit it at the Fed to cover our expenses.

Say what? See, here’s the thing. The reason the debt ceiling debate is scary is because there’s a hostage in the mix: the creditworthiness of the U.S. government. In theory, if Congress doesn’t approve a breach of the debt ceiling, the US would be unable to borrow any more money to pay off the huge amount of interest on all the money they already borrowed.  That would mean people would get scared about the US government’s ability to pay back its debts, and people would start dumping US debt, pushing up interest rates and hurting the real economy.

Enter the trillion dollar coin. If we take away the threat to U.S. credit by adding a trillion dollars to our spending pile out of thin air, politicians can continue to throw temper tantrums for months to come if they please, and we don’t have to replay 2011’s debt ceiling show down. Why Platinum? This is possible through a little known law (until now) which allows the minting of platinum (and platinum only) coins with no Congressional approval. The concept has been promoted by Josh Barro at Bloomberg and Joe Weisenthal at Business Insider, and even the venerable Paul Krugman has lent the idea credence. It seemed to start as a joke, but as we gear up for round 1,246 of poorly-informed fiscal debate from Congress, all of the sudden, the proposal has legs. And by legs, we mean there’s a White House Petition for it. By legs, we mean there is a Congressman trying to STOP them from succeeding:

U.S. Rep. Greg Walden (R-Ore.) today announced plans to introduce a bill to stop a proposal to mint high-value platinum coins to pay the federal government’s bills.

“Some people are in denial about the need to reduce spending and balance the budget. This scheme to mint trillion dollar platinum coins is absurd and dangerous, and would be laughable if the proponents weren’t so serious about it as a solution. I’m introducing a bill to stop it in its tracks,” Rep. Walden said.

What did the advocates have to say in response?

It seems insane, right? Heidi Moore perhaps described it best, arguing it has, “all the charm and logic of a mad scientist’s plot.” But here’s the thing.

We’re on board.

Before you worry about us having lost our minds, let us explain. Do we think it’s a solution to the debt crisis? No, clearly not. Is it smart long-term policy? No. A little juvenile? Hell, it’s the equivalent of Obama sticking his tongue out at Congress. At this point, though, does that really matter?

Here’s what’s going to happen over the next couple of months. John Boehner is going to cuss out Harry Reid some more. Democrats will turn into full blown demagogues about the suffering middle class and the evil Republicans looking to gut their safety nets. Republicans will preach that our freedoms and liberties are being infringed upon. Both sides will treat the other as a caricature, and we’ll probably figure out a stop gap measure 72 hours past whatever artificial deadline we create. It will be another three ring circus with all the melodrama of a telenovela during sweeps week. The market will respond with all the confidence of a 14 year old girl crushing on a senior in high school, and the media will create a story arc that even Steven Spielberg will give a slow clap.

In other words- we’ve seen this episode before, so can we just skip it?

Mint the coin. Pull out the rug from beneath the foot-stomping pouters on Capitol Hill and force them to act their age. Ideally, they just read pieces like this and realize that their existence is proof positive of how asinine political maneuvering has become. Is it a long shot? Maybe, but definitely more likely than them reaching said epiphany on their own. After all, we don’t REALLY want a one trillion dollar platinum coin minted. We just want the message sent to Republicans and Democrats alike.

In most practical ways, the Treasury minting the $1 trillion coin is just a different accounting method to reach the same end goal. As long as the coin came with a promise to pay it back and melt it down later (which, from a balance sheet perspective, is functionally what a bond is doing), it would be basically the same as raising the debt ceiling. But it would be interesting to see if markets reacted as if this were fresh new money – the addition of $1 trillion to the global balance sheet out of thin air would surely cause some big market moves we might like to see.

Would platinum rally, regardless of the fact that we don’t actually need $1 trillion worth of platinum to mint the coin? Would bond futures fall dozens of basis points as people realized the government had no intention of borrowing more to pay its debts? And how about the U.S. Dollar – would it be immediately devalued by $1 trillion? In theory, those are mega trends we wouldn’t mind seeing… although society itself might break down, making it hard for managed futures to reap their benefits…

5 comments

  1. […] Mint That Coin (managed-futures-blog.attaincapital.com) […]

  2. […] with the impish bloggers and columnists, say the financial pros at Attain Capital Management. “Mint the coin. Pull out the rug from beneath the foot-stomping pouters on Capitol Hill and […]

  3. […] with the impish bloggers and columnists, say the financial pros at Attain Capital Management. “Mint the coin. Pull out the rug from beneath the foot-stomping pouters on Capitol Hill and […]

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