The Debt-Ceiling Crisis
The ever recurring US debt-ceiling “crisis” has become a regular joke every few years as Congress scrambles to “raise-the-roof,” as the cool kids used to say. When the federal government reaches the previously set debt-ceiling, all the politicians in Congress erupt in a posturing frenzy to strike deals in the name of saving the economy. Of course, it is Congress’ careless spending in the first place that gets us to that point.
So here we meet again in October of 2021, and Congress is working on the deal to raise the ceiling … again. As always, they will, no doubt, end up raising the ceiling through more money creation, resulting in the further devaluation of the currency. Congress holds the power of the purse. Do you really think they are going to put their own salaries at risk?
Dictionary.com defines “ceiling” as,
the top limit imposed by law on the amount of money that can be charged or spent or the quantity of goods that can be produced or sold.
But see, we live in Bizarro World (as Justin Raimondo used to say), and Dictionary.com has not quite caught up with the new reality. The word “ceiling” does not mean “top limit” anymore. In this world, the ceiling floats.
Mint the Coin
Back in 2011 (one of the many other debt-ceiling crises), then President Obama discussed the idea of issuing a massive trillion dollar platinum coin through the US mint to payoff US debt. This idea was floating around at the time (pun intended) and was taken quite seriously by many in the establishment and corporate press. Joe Weisenthal has recently resurrected the hair-brained scheme. Now, #MintTheCoin is trending on Twitter.
The concept is apparently based on the legal authority granted by Section 31 U.S.C. § 5112 of the United States Code. Per this code, the Treasury Secretary
“may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”
The idea is to mint this massive coin (or coins) and deposit it at the US Treasury to payoff debt. But, they already create money out of thin air to service the debt (and create more), so I’m not sure why they’d want to waste their time minting platinum.
Treasury Secretary, Janet Yellen, said she is opposed to the idea, and doesn't believe it should be considered seriously.
"It’s really a gimmick and what’s necessary is for Congress to show that the world can count on America paying its debts.”
That’s nice to hear, but does she not remember the Nixon Shock? Gerald Epstein articulates it well:
“Forty years ago this month, on August 15, 1971, President Nixon ‘closed the gold window’, refusing to let foreign central banks redeem their dollars for gold, facilitating the devaluation of the U.S dollar which had been fixed relative to gold for almost thirty years. While not strictly a default on a US debt obligation, by closing the gold window the US government abrogated a financial commitment it had made to the rest of the world at the Bretton Woods Conference in 1944 that set up the post-war monetary system. At Bretton Woods, the United States had promised to redeem any and all U.S. dollars held by foreigners – later limited to just foreign central banks — for $35 dollars an ounce. This promise explains why the Bretton Woods monetary system was called a ‘gold exchange standard’ and why many believed the US dollar to be ‘as good as gold’. When Nixon refused to let foreign central banks turn in their dollars for gold, and encouraged the devaluation of the dollar which reduced the value of foreign central bank holdings of dollars, the Nixon administration effectively ‘defaulted’ on the United States’ long-standing obligations ending once and for all the Bretton Woods System.”
In reality, the US government is defaulting on the debt daily. The default takes the form of devaluation of the currency, facilitated deceitfully. They create money out of nothing and service the debt with it. As a result, the creditors and those who hold/use the currency then get stiffed with a lower purchasing power.
Do You Believe in Magic?
Creating trillion dollar coins to payoff the debt (they would need more than a handful) is only another form of default. But, it is at least one that can be commemorated with a politician’s plastic smile minted in shiny platinum.
I’ll leave you with a great quote from Jeff Deist, president of the Mises Institute. He was on Kennedy Nation last night and had the following response when asked about the coin gimmick:
“If creating money were going to work, then the last 18 months would have put us into nirvana because 25% of all US dollars ever created were created in the past 18 months.”