WASHINGTON -- Rep. Greg Walden (R-Ore.) is introducing legislation that would ban President Barack Obama and the U.S. Treasury from minting platinum coins to avert the debt ceiling standoff.
The bill, first reported by Joe Weisenthal at The Business Insider, raises the profile of "the platinum option," which has received little serious attention in the nation's capital. It also rests on a fundamental misunderstanding of both the debt ceiling and how the magic coin trick -- officially known as "coin seigniorage" -- would work.
A 1996 law grants the Treasury Department the power to mint platinum coins with any face value, regardless of how much platinum is used. A 1-ounce coin could be minted at $1 trillion, $5 trillion or any other amount. Once the coin is deposited in Treasury's account at the Federal Reserve, the Obama administration could begin paying bills with this new money.
"This scheme to mint trillion-dollar platinum coins is absurd and dangerous," Walden said in a written statement Monday. "My wife and I have owned and operated a small business since 1986. When it came time to pay the bills, we couldn’t just mint a coin to create more money out of thin air. We sat down and figured out how to balance the books. That’s what Washington needs to do as well. My bill will take the coin scheme off the table by disallowing the Treasury to mint platinum coins as a way to pay down the debt."
Refusing to raise the debt ceiling is not analogous to a small business balancing its books, however. It's more like a small business that has received a bank loan, and then simply refuses to pay back the bank. Raising the debt ceiling does not by itself authorize any new spending by the federal government; it only authorizes the government to continue to meet obligations to which it has already agreed: interest payments on the debt, the war in Afghanistan, Social Security benefits, federal employee salaries and other initiatives authorized by Congress.
The platinum coins, moreover, would not grant Obama any additional spending powers. Money could only be withdrawn from the Fed to pay for projects already explicitly approved by Congress. So even if Obama minted a $5 trillion coin, he would not immediately have $5 trillion to spend. He could only withdraw money to pay off debts and meet federal payroll. If Congress objects to any of those activities, it can pass laws to end them. The $1 trillion coin, therefore, could not spark inflation unless Congress suddenly began authorizing trillions of dollars in new spending projects.
Walden's legislation also implicitly acknowledges that "the platinum option" is, in fact, legal. While the 1996 law uses very broad and explicit language, it was designed to permit various types of coins to be minted for collectors, and it has not been challenged in court for a use akin to raising the debt ceiling. Should Obama ever invoke "the platinum option" -- and he has so far offered no indication that he would seriously consider it -- the existence of Walden's bill could be used to support a court case in defense of the move.