Could a $1 trillion coin fix the national debt?
There's been talk of minting a massive coin of platinum to help solve the nation's debt ceiling problem. It's a fun idea that has lots of problems.
Updated: 11:59 a.m. ET
Ah, platinum, the metal of kings. It's prized by jewelers because it doesn't tarnish, and it's a key material in catalytic converters, used to reduce auto emissions.
Now, theoretically, it's also a way to provide relief from the nation's debt ceiling crisis.
That's been the talk on Twitter and the Internet in the past week or so. Rep. Jerome Nadler, D-N.Y., suggested the Treasury mint a $1 trillion platinum coin and deposit it at a handy Federal Reserve Bank, probably the Federal Reserve Bank of New York.
And voila! The $1 trillion addition to the Treasury's bank account would give the government breathing room to avoid the debt ceiling fight. There's even a petition you can sign demanding that President Barack Obama mint the coin.
It's an interesting, if loopy, idea. There are lots of questions. Many people think it's illegal, while others say the legal questions are balderdash. Most important, dare we say it, the idea is simply impractical. Here's why.
The U.S. Mint makes coins -- coins we use to buy things as well as gold and silver coins that investors buy. It also makes numismatic coins made for collectors. The Treasury already sells 1-ounce American Eagle platinum coins. You can buy one directly from the Mint for $1,892 and through dealers.
Let's go back to the history of the law, enacted in the late 1990s. The legislation was actually an amendment designed to correct a flaw in an earlier law designed to let the Treasury issue and market platinum bullion and coins, according to the bill's author. According to the Washington Post, former Rep. Peter Castle, R-Del., says his only intent was to give the U.S. Mint, an agency of the Treasury Department, the flexibility to create coins small enough to attract a broad array of investors and collectors.
It was not meant to create a tool to pay down the national debt. In the 1990s, Castle was chairman of the House Financial Services subcommittee on domestic and international monetary policy, which supervised coinage questions. Still, Philip Diehl, who ran the U.S. Mint from 1994 to 2000 and was also involved in writing the law, thinks the idea may be legal.
The problem, as Heidi Moore in Britain's Guardian newspaper notes, is that the U.S. Treasury spends about $100 billion a month. A trillion-dollar coin would buy the Treasury only about 10 months of breathing room before the debt ceiling fight would erupt again as it did in the summer of 2011. "It is dubious at best," she notes, "that a Congress full of reckless legislators will surely come to their senses in only 10 months, given that they haven't for the past 18 months since the same last debacle."
How big would the coin have to be? Theoretically, the Mint could produce a platinum coin of any size and say it's worth $1 trillion.
People might react badly to an arbitrary value put on a piece of metal. But you don't know. When the Federal Reserve prints a $1 bill, people accept that value. But it is still a relative value. Currency markets determine the dollar's value around the world. That's because the Treasury stopped making the dollar directly convertible into gold in 1971.
So, it's fair to say that an attempt to create this coin might end up in the courts. And Rep. Greg Walden, R-Ore., filed a bill Monday to ban the minting of the coin.
But let's say the United States were required to make a coin that really was made out of $1 trillion of the metal. What are we talking about?
We're talking a lot of platinum
How big is a platinum coin worth $1 trillion? If you price the platinum at Friday's close of $1,558.50 per troy ounce, the coin would have to weigh 641.6 million troy ounces. Hard to get your arms around that idea? That would be 19.96 million kilograms. Still having a problem? No problem. Try 22,000 tons.
For context, global production of platinum over the last five years has averaged 194,000 kilograms -- or 214 tons. U.S. production is only 3,700 kilograms a year. The government doesn't maintain a platinum reserve such as the gold reserve at Ft. Knox, Ky.
In other words, to assemble enough platinum at current market prices to make a $1 trillion coin would require all of the world's platinum production for the next 103 years. If you were to use U.S.-sourced platinum, it would take maybe 5,400 years.
Environmentalists would surely object. About 20% of those 194,000 kilograms produced annually globally goes into catalytic converters installed in motor vehicles to reduce air pollution. The platinum is one of key components in a catalytic converter. The converter turns toxic byproducts of combustion in the exhaust of an internal combustion engine into less toxic substances.
There is some good news. The 19.96 million kilograms of platinum probably could fit into its special place at the New York Fed with room to spare.
Markets gone wild
But, if the United States were to say it will acquire enough platinum to make a $1 trillion column, you can bet the price of platinum would explode.
That, in turn, would send prices soaring for gold, silver and the related platinum metals of ruthenium, rhodium, palladium, osmium and iridium. Great for speculators, not so great for anyone else.
Still, a soaring price for platinum would mean you don't need as much platinum for a $1 trillion coin. How much less? Your guess is as good as mine.
Minting platinum would not be free
The fact is, the U.S. Mint is obligated to earn a profit -- and does. But it is not a wildly profitable business. It grossed some $3.54 billion in fiscal 2012 and ended with a profit of $208.2 million. Revenue was down 31% overall from a year earlier. Profit, including what the Mint turns over to the Treasury, was off 60.6%.
To make pennies, nickels, dimes and quarters or to make gold and silver coins for investors and collectors, the Mint needs to buy the raw materials -- usually as blanks from a metal refiner. The Mint then turns the blanks into coins and sells them. The same is true for coins sold to collectors and coins meant for speculation.
So, if you're going to have a $1 trillion platinum coin, someone is going to pay close to $1 trillion to get the platinum. It's not clear how that would get financed.
Producing platinum would be a nightmare
Let's say the Mint operates as it does in procuring gold and silver for bullion and coin collectors. It is required to buy from U.S. domiciled companies with the gold and silver produced in mines in the United States.
Platinum presents big problems.
It is really hard to find. It usually turns up as a tiny by-product of nickel and copper. Sometimes, it's a byproduct of gold.
Second, deposits are scattered randomly around the globe. U.S. platinum production is 6% of the global total. South Africa was the largest producer in 2011 with 145,000 kilograms -- 74% of the world's total.
So, to get the platinum would mean not just the higher prices noted above but almost surely a wild drive to find more platinum deposits.
Whole mountains literally would be removed in the search.
You can imagine the politics of that idea.
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