A Platinum Parachute?
Remember when gold used to be a big deal? America adhered to the Gold Standard, and a musician was excited when their album “went gold,” meaning it sold more than a million units. Then, during the 1970s, Nixon abandoned the Gold Standard and gold-status for albums got downgraded to only 500,000 units and platinum-status was given to the million sellers. It’s been downhill for poor gold ever since. And now platinum’s all the rage again with everyone debating the “platinum coin” option for bypassing the debt-ceiling debate in the United States.
Basically, here’s the idea. With the U.S. federal government closing in on its legal borrowing limit, some maintain that a loophole designed to govern the issuance of commemorative coins would give the Federal Reserve the ability to strike a platinum coin worth US$1 trillion, then deposit that with the Treasury. Bingo, the Treasury now has US$1 trillion to pay bills with. Congress can wrangle all it wants, but when they finally raise the debt ceiling, the coin would be destroyed and theoretically everything would be back to normal. Paul Krugman’s for it (in fact Krugman brought the idea up back in 2011). Republicans are against it. In fact, an Oregonian representative is so fired up, he’s introducing legislation to prevent it from happening. Honestly, the same thing could be accomplished if American Express would just issue the Treasury an Ultra-Premium Platinum card with a trillion-dollar limit that they could use for a few months, while Republicans and Democrats argue over the ceiling. Think of the bragging rights AmEx would have then! If Platinum coins ended up in the Federal Reserve, it would certainly, as WonkBlog argues, be a harmful to the credibility of two highly credible institutions – the U.S. Treasury and the Federal Reserve.
There are also those who maintain that the Fourteenth Amendment might allow the President to simply brush the debt-ceiling debate aside and ignore the limit. Passed just after the Civil War, Section 4 of the Fourteenth Amendment states that “the validity of the public debt of the United States shall not be questioned.” The argument is that when you debate about a debt ceiling, you’re calling into question the ability of the federal government to pay its debts. Jack Balkin over at Yale University goes so far as to maintain that the President is constitutionally obligated to make sure bondholders get paid, thus requiring him to ignore the ceiling debate.
But, wherever you stand on platinum coins or Fourteenth Amendment semantics, neither addresses debt growth. Government debt is around 70% of GDP and as health care costs rise as Boomers age, the debt to GDP ratio (one measure of debt substantiality) is expected to rise. The fiscal cliff deal last week did chip the deficit by $750 billion but likely not nearly enough to pay for expected rising entitlement spending. If the U.S. can work out some serious budget reform in the coming year, we’ll likely look back on 2013 as a golden age of fiscal compromise…or rather, a platinum age.