While in all probability America’s so-called “debt ceiling” will be raised next week – just as it routinely has been for the last 74 times since 1962 – the utterly dysfunctional political dynamic in Washington has turned what should be a simple matter of financial housekeeping into a completely avoidable “crisis” that now threatens to damage the credit rating of the USA and quite possibly even destabilize an already fragile global economy as a consequence.
After months of ideological wrangling over this issue, most Americans (not to mention those around the world that are dependent in one way or another on the U.S. economy) are justifiably fed up with all the Kabuki bullshit surrounding the wholly disingenuous and fraudulent “plans” that have been floated by both sides – none of which, it is important to note, will do one iota of good to address the biggest challenge currently facing the economy, which is that of intractable unemployment. If anything, the multi-trillion dollar spending cuts being proposed will simply exacerbate the problem and drive the U.S. economy even deeper into recession.
Short of signing a “clean” bill to raise the borrowing limit (as has always been done in the past) there is in fact another alternative that is almost just as elegantly simple in nature. This plan involves a little known monetary device known as “coin seignorage”; that is, the difference between the cost of bullion and the value of the coin into which the bullion is converted. A good explanation of how this jumbo coin seignorage would work in the context of circumventing the debt limit is provided by Joe Firestone writing at the blog Pragmatic Capitalism:
Congress has provided the authority, in legislation passed in 1996, for the US Mint to create platinum bullion or proof platinum coins with arbitrary fiat face value having no relationship to the value of the platinum used in these coins. The US code also provides for the Treasury to periodically “sweep” the Mint’s account at the Federal Reserve Bank for profits earned from coin seigniorage. These profits are then booked as miscellaneous receipts (revenue) to the Treasury and go into the Treasury General Account, narrowing the revenue gap between spending and tax revenues. Platinum coins with huge face values e.g. $2 Trillion, could close the revenue gap entirely, and technically end deficit spending, while still retaining the gap between tax revenues and spending.
So there, fiscal “crisis” averted. Perhaps with the issue resolved, the Obama Administration and the U.S. Congress could then focus on more important things like kick-starting the economy and tackling the problem of joblessness in America.