On Monday, Keynesian economist Paul Krugman discussed and gave his approval for a proposal to produce a platinum coin with a face value of $1 trillion and use seigniorage to sidestep the debt ceiling in the event of an unwillingness by Congress to raise the debt ceiling.
The concept is based on 31 U.S.C. Section 5112, subsection (k), which says that "The 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," was first proposed by Brad DeLong in July 2010, and was first popularized by establishment media during the last debt ceiling debate in July 2011.
Rep. Greg Walden (R-OR), announced on Monday that he plans to introduce a bill that would close the loophole, saying, "Some people are in denial about the need to reduce spending and balance the budget. This scheme to mint trillion dollar platinum coins is absurd and dangerous, and would be laughable if the proponents weren't so serious about it as a solution. I'm introducing a bill to stop it in its tracks. 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. We must reduce spending and get our fiscal house in order."
The last nation to produce such a large denomination of currency was Zimbabwe, which eventually printed $Z 100 trillion bills (pictured above) as it suffered through hyperinflation in the mid-to-late 2000s. Zimbabwe eventually had to abandon its currency in 2009, and has yet to create a new currency, using foreign currencies instead.
While it is certainly true that the $1 trillion platinum coin would not have the same effect as Zimbabwe's "helicopter money," as the coin would not be released into circulation, the danger of hyperinflation and/or destruction of the dollar is still very real. This is because such an action would undermine the basis that gives the dollar value, and the people holding dollars would lose confidence in its ability to retain its value. This could lead to a selloff in treasury bonds, as investors realize that the government is ready and willing to use hypertechnical monetary tricks to evade its obligations. There is also the constitutional issue, as the Constitution clearly puts the power of the purse in the hands of Congress, and such a measure would show that President Obama has no respect for the defined limits of his office.
From an ethical standpoint, the above arguments actually form a powerful moral case in favor of minting the $1 trillion coin, as it would inform bond investors and citizens of the fact that they are being scammed and defrauded, and would help speed along the eventual end of central banking and return to sound money.
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