U.S. DEBT | Debt-Ceiling Chicken Again?

Suggestions for the trillion-dollar coin.

There is nothing in the U.S. Constitution about a debt ceiling.

But there is something in the U.S. Constitution about:

• Congress approving the President's budget and

• The President paying debts of the U.S. Government (especially see 14th Amendment, Section 4). 

If the Tea Party faction in the House wants again to play chicken over the budget and the debt ceiling, and put into question the payment of interest on previously issued, supposedly "risk-free" U.S. government bonds, it is time to resurrect the trillion-dollar coin idea.

Sure, the Tea Party will go nuts. But the debt-ceiling debate is about whether Congress will provide the money for debts already issued. If the idea of an experimental default on U.S. debt gets support in Congress, "No, the financial markets won't go apocalyptic," says one newsletter (I paraphrase). "It will be worse than that."

Financial panics are no fun. Ask those who were involved in the Lehman-bankruptcy days of five years ago, or look at the effects of the widespread bank panics of 1932-33. It took FDR and his Republican Treasury Secretary, Will Woodin, months to quell the panic and it took two new agencies  (the FDIC and the SEC) to fix the financial system for the next half-century. 

Secretary Woodin had language inserted in the bill outlawing private ownership of gold. The language allowed ownership of high-value gold coins to be inserted in the legislation that ended (until Nixon and the freeing of the market for gold) Americans' right to own gold. A subsequent law updates this law to allow the Treasury to mint platinum (palladium) coins of any denomination. The language seems well suited to minting a special trillion-dollar coin that the Treasury would deposit with the Federal Reserve. A last resort.

WOODIN | His Contribution to the Platinum Coin, HuffPost

My story on the history of the trillion-dollar Palladium (Platinum) coin was published today by Huffington Post. I wrote it before the Fed and Treasury decided to rule out issuance of the platinum coin.  (HuffPost sometimes takes a couple of days to post things, often because of rights issues relating to images.) 

I obtained permission to use the image of the "Woodin Nickel" for my blogs (see January 11 post below), but HuffPost must have decided the terms of the permission did not apply to them, and only to my personal posts on Google Blogger. So only the $25 platinum coin approved in 2010 is shown in their post, courtesy of the U.S. Mint.

In this post I am including two photos of Will Woodin that were generously loaned to me for copying, to accompany what I might write about Woodin, by his granddaughter Anne Harvey Gerli. 

This is Will Woodin with his beloved guitar, outside
the U.S. Embassy to Cuba. Photo by permission
of Anne Harvey Gerli, Woodin's granddaughter.

Here Will Woodin is proudly displaying his
catch of the day. East Hampton? Pennsylvania?
Photo by permission of Anne Harvey Gerli.

FDR's GOP Treasury Secretary Exempted Pattern Coins

This post is merged with Chapter 12 of my biography of William Woodin. It is kept posted to avoid broken links. 
http://cityeconomist.blogspot.com/2012/10/the-crash-and-fdrs-bi-partisan-response.html

Legality of the Trillion-Dollar Coin

One suggested way to address the debt limit challenge is for the U.S. Treasury to issue a trillion-dollar coin and then deposit it with the Federal Reserve System as cash. I'm not a lawyer, so I will not opine on the legality of any proposed action. However, I can read. I can look up the law. I can post it herewith.

The authority for minting a trillion-dollar "platinum" coin appears to come from U.S. Code 31, #5112, subsection (v). The reference is to palladium, which is in the family of "white gold" platinum elements, but has different characteristics from platinum. Note that the law in clause (v) (3) sets a minimum price for any minted coin, i.e., the cost of acquiring the metal and the cost of minting the coin. It does not have a maximum price. Here is the entire subsection, from the Cornell Law School website (see link at the end).

(v) Palladium Bullion Investment Coins.—

(1) In general.— Subject to the submission to the Secretary and the Congress of a marketing study described in paragraph (8), beginning not more than 1 year after the submission of the study to the Secretary and the Congress, the Secretary shall mint and issue the palladium coins described in paragraph (12) of subsection (a) in such quantities as the Secretary may determine to be appropriate to meet demand.

(2) Source of bullion.—

(A) In general.— The Secretary shall acquire bullion for the palladium coins issued under this subsection by purchase of palladium mined from natural deposits in the United States, or in a territory or possession of the United States, within 1 year after the month in which the ore from which it is derived was mined. If no such palladium is available or if it is not economically feasible to obtain such palladium, the Secretary may obtain palladium for the palladium coins described in paragraph (12) of subsection (a) from other available sources.

(B) Price of bullion.— The Secretary shall pay not more than the average world price for the palladium under subparagraph (A).

(3) Sale of coins.— Each coin issued under this subsection shall be sold for an amount the Secretary determines to be appropriate, but not less than the sum of—

(A) the market value of the bullion at the time of sale; and

(B) the cost of designing and issuing the coins, including labor, materials, dies, use of machinery, overhead expenses, marketing, distribution, and shipping.

(4) Treatment.— For purposes of section 5134 and 5136, all coins minted under this subsection shall be considered to be numismatic items.

(5) Quality.— The Secretary may issue the coins described in paragraph (1) in both proof and uncirculated versions, except that, should the Secretary determine that it is appropriate to issue proof or uncirculated versions of such coin, the Secretary shall, to the greatest extent possible, ensure that the surface treatment of each year’s proof or uncirculated version differs in some material way from that of the preceding year.

(6) Design.— Coins minted and issued under this subsection shall bear designs on the obverse and reverse that are close likenesses of the work of famed American coin designer and medallic artist Adolph Alexander Weinman—

(A) the obverse shall bear a high-relief likeness of the “Winged Liberty” design used on the obverse of the so-called “Mercury dime”;

(B) the reverse shall bear a high-relief version of the reverse design of the 1907 American Institute of Architects medal; and

(C) the coin shall bear such other inscriptions, including “Liberty”, “In God We Trust”, “United States of America”, the denomination and weight of the coin and the fineness of the metal, as the Secretary determines to be appropriate and in keeping with the original design.

(7) Mint facility.— Any United States mint, other than the United States Mint at West Point, New York, may be used to strike coins minted under this subsection other than any proof version of any such coin. If the Secretary determines that it is appropriate to issue any proof version of such coin, coins of such version shall be struck only at the United States Mint at West Point, New York.

(8) Marketing study defined.— The market study described in paragraph (1) means an analysis of the market for palladium bullion investments conducted by a reputable, independent third party that demonstrates that there would be adequate demand for palladium bullion coins produced by the United States Mint to ensure that such coins could be minted and issued at no net cost to taxpayers.  http://www.law.cornell.edu/uscode/text/31/5112