$1 trillion platinum coin hogwash – if it should happen, buy gold and silver

How anyone can suggest the creation of a $1 trillion platinum coin purely to circumvent checks on government spending defeats all logic and its creation would presage a flight into gold and silver.

Far be it for me to argue with a Nobel prizewinning economist, members of Congress and however many thousands have signed the White House petition to mint it, but this whole idea of a trillion dollar platinum coin is ludicrous.

It would have to constitute the most gigantic fraud ever perpetuated by a government and probably make the U.S. dollar and the U.S. economy the laughing stock of the world.  If anything, it would trigger a huge investment surge into gold and silver as all faith in government-created money would evaporate!

Firstly – why platinum?  It is based on a legal technicality allowing the U.S. to mint platinum coins of any face value.  However, given that $1 trillion dollars worth of platinum at current prices represents around 8 or 9 times the amount of platinum ever mined throughout history, a trillion dollar face value coin would have to bring any kind of money creation into even more disrepute than it already is.

I believe that whoever initially promoted the idea did so as an economic joke and has to be rolling on the floor laughing that so many have even contemplated it.  Why respectable news outlets (even Mineweb) have given any kind of credence to the idea defeats me.   It defies all economic logic in virtually every respect.  Its only purpose seems to me to be to enable the U.S. government to carry on spending money, and increase its debt, ad infinitum with no checks and balances ever being made in Congress again.  And with the politicians’ propensity to spend money the government currently doesn’t have anyway, spending would just accelerate and accelerate.  It could only end in tears!

Grant Williams – a Singapore-based commentator who deserves an even greater following than he already achieves with his ‘Things that make you go hmm’ newsletter – puts his views on the trillion dollar coin idea succinctly –

 “But what the hell is this all about? Are we seriously talking about producing a magical coin that will solve the debt problem? Folks, it looks like that’s the world we now live in—a world inhabited by ‘journalists’ who actually spend their time writing articles with headlines such as:

Can a $1 Trillion Coin End Debt Ceiling Crisis?

Allow me. No.

Is a $1 Trillion Coin a Good Way to Avoid Another Debt-Ceiling Impasse?

I’ll take this one too. NO!”

Williams (no relation, but I wish I had his economic brain) goes on to say: “Hell, CNN even aired a TWO-AND-A-HALF-MINUTE segment on whether this was a feasible solution, which included the opinion of ‘economist’ Joe Gagnon, who thought it was a good idea:

It’s better than a government shutdown, it’s better than defaulting on the debt. It’s better than the bad alternatives.

It gets even better.

A Democratic Senator from Brooklyn, NY, whose name—and I wish I were kidding—is Jerry Lewis Nadler, said:

I’m being absolutely serious… It sounds silly but it’s absolutely legal.

But perhaps the pick of the quotes is this one from the segment anchor, Brian Todd:

…and by the way, none of this requires Congressional consent, so that’s what makes it attractive to so many observers here.

I despair.

It may be technically legal, but why do these people insist on opening their mouths and letting the words escape before engaging their brains?

You cannot simply mint a 1-oz platnum coin, stamp ‘$1 Trillion’ on it, and assume it is worth $1 trillion dollars.

This is simply a cute way for politicians to technically stay within the law and have free reign over spending again. Jeez.”

Another excellent commentator – Mike ‘Mish’ Shedlock – noted also “The proposal is nothing but a fictitious accounting entry. There is no trillion dollars. Certainly the treasury would not buy a trillion dollars worth of platinum. Indeed, that would be impossible, at least at today’s pricing.

Rather, the proposal was to take a coin (size is irrelevant), and stamp “one trillion dollars” on it.

Questions of legality have arisen.

It’s important to note that Krugman (correctly) never proposed spending the coin. It would take an act of Congress to spend it.

Thus, the proposal was to value the coin at one trillion dollars simply as an accounting entity. In other words, the Treasury would take a coin worth essentially nothing, that could not be spent, and value it on the books as one trillion dollars.

My personal opinion is that it would be fraud to do place a one trillion value on a coin that could not be spent (in this case, because the money was already spent.)”

How can, as Shedlock says,  making a coin and putting an arbitrary $1 trillion dollar value on it and then taking it into reserves be anything but in reality fraudulent even if technically legal?  OK then perhaps taking a piece of paper and putting a $1 – or a piece of the same paper and putting a $100 – value on it might look to be equally fraudulent too but at least there is a promise from the government to back this – although unfortunately not in gold any longer – but a coin which cannot be supported or spent has to be taking the whole fiat currency concept a step too far.

Why would the creation of such a coin create a flight into gold and silver?  Purely through the complete death of any remaining credibility and trust in the U.S. currency and government competence to spend wisely.  True, governments have always been experts at creating money out of thin air, but to do so this blatantly would have to be the ultimate step too far. 

Could it happen?  Never underestimate the potential stupidity of politicians after votes or seeking crazy solutions to seemingly intractable problems.

 iPAd Version – Picture – A Platinum Bar is placed on the floor of the New York Stock Exchange in New York: REUTERS/Shannon Stapleton

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