US PRESIDENT Barack Obama appears to have put the final nail in the coffin of one of the United States’ most zany financial ideas – minting a $1 trillion coin to help pay off the country’s national debts.
Speaking this afternoon, at his final press conference of his first Presidential term, Obama said the upcoming talks on raising the US’s debt ceiling could not simply be avoided simply by legal trickery.
“There are no magic tricks here,” Obama told reporters, clearly referring to the campaign to mint the $1 trillion coin. “There are no loopholes.”
The United States, which only raised its legal borrowing limits in 2011, technically breached its new debt ceiling of almost $16 trillion (€11.9 trillion) in December but is currently surviving thanks to operations by the Treasury Department which can buy time for another two months or so.
However, without any extra agreement from Congress – which remains in split control, with Republicans in the House and Democrats in the Senate – the ceiling would be breached at the end of February, when the US is due to repay bonds worth around $500 billion.
An online campaign had sprung up, though, encouraging the US to exploit a legal technicality about its power to mint commemorative coins as an emergency option.
The Federal Reserve – the US’s central bank – is the sole body with the power to simply create US dollars (a power it shares with all central banks), but US law allows the Treasury Department (the equivalent of the Department of Finance) to mint coins for commemorative purposes.
These coins retain their status as legal tender, and could (if the holder so wanted) be handed over in a shop or bank – but the Treasury’s power is qualified: it can only issue these legally legitimate coins as long as they are made of platinum, and not the same kind of metals used in ‘regular’ coins.
A campaign which first popped up in the comments section of US finance blogs quickly grew momentum – leading to substantial suggestions that, in the absence of any political deal to raise the ceiling again, the #MintTheCoin initiative could become a reality.
A final option if neither side will budge
Therefore, if the Republicans refused to allow an increase in debts but the Democrats refused to countenance cuts to welfare programs, a novel compromise could have seen the Treasury Department mint a single giant coin – worth, say, $1 trillion – and deposit it in the Federal Reserve, thereby giving it the ability to repay debts as it needs.
However, the campaign took a major dent over the weekend when a Treasury spokesman told the Washington Post that neither the Treasury nor the Federal Reserve “believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit”.
The comments indicated that the Fed may not have been prepared to treat the $1 trillion coin as if it were legal tender – particularly if it created a dangerous precedent where the US government, and not the central bank, had the power to manufacture infinite currency and make its debts disappear.
Those comments, combined with those of Obama today, mean the $1 trillion coin will not be pursued as an emergency option.
“To even entertain the idea of this happening, of the United States of America not paying its bills, it is irresponsible, it is absurd,” Obama said in repeating his demand for an increase in the debt ceiling. “We are not a deadbeat nation.
“While I’m willing to compromise and find common ground over how to reduce our deficits, America cannot afford another debate with this Congress about whether or not they should pay the bills they’ve already racked up.”