WASHINGTON -- If President Obama and congressional leaders can't agree on a new debt-ceiling plan, the Treasury Department can solve the problem unilaterally by minting two new coins ... each worth $1 trillion, according to Yale law professor Jack M. Balkin.
The U.S. could then deposit the coins in the Federal Reserve and write checks on the value created, Balkin said.
Balkin floated this so-called platinum coin option in an essay published by CNN.com on July 28. He credited the idea to unnamed commentators. | SEE STORY
The platinum coin option depends on four basic facts. One, the President lacks constitutional authority to borrow money on his own. Second, seigniorage, a legal principle, enables the government to artificially create financial value in any amount, simply by printing new bills or minting new coins. Third, current federal statutes impose a limit on the total value of banknotes (paper bills) that can be printed and circulated at any one time. Fourth, despite these limits, the executive branch nevertheless has unlimited power to mint coins.
While clever, the platinum coin option amounts to a variation on the classic ploy of printing money without real-world value to back it up -- a practice that many traditional economists say eventually results in inflation.
In the past two weeks, the "platinum coin option" has received many lighthearted mentions in serious forums.
ABC News' "This Week" telecast on July 31 included a panel discussion with Nobel Prize-winning economist Paul Krugman, who said the option appeared legal. He also called it "ridiculous," adding: "But the whole debate [over the debt ceiling] is ridiculous, right?"
The platinum coin option has also been highlighted by numerous leading political websites and by a blogger for the respected British political magazine, The Economist.