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January 13, 2013

Trillion Dollar Coin Is a Gimmick To Sidestep Our Debt Problem


So some think that the government can resolve the debt-limit debate just by minting a $1 trillion platinum coin and depositing it with the Fed? Who are they trying to kid?

The proposal revolves around the age-old practice of "seigniorage," which is the difference between the value of the metal in a coin and its face value. Each quarter in your pocket contains about five cents worth of metal. Once the U.S. Mint stamps that metal into a quarter, it immediately becomes five times as valuable.

The mint has the ability under law to assign any face value to coins made of platinum. So some people proposed that it take a couple thousand dollars' worth and stamp it with a $1 trillion value, and voilà, the government has another trillion dollars in assets. This reduces the national debt by that amount, thus avoiding the debt ceiling.

The coin gambit reflects magical thinking and the worst type of Washington sophistry. Rather than dealing with a serious and growing problem, the coin idea is an attempt to find a cute gimmick that sidesteps it.

The United States is rapidly spending itself into insolvency. Since 2000, the national debt has grown from about $5.7 trillion to $16 trillion. Annual U.S. government spending grew from roughly $1.8 trillion in 2000 to $3.8 trillion in 2012. In Fiscal Year 2012 alone, the government borrowed about $1.3 trillion to pay for its spending.

Looking forward, automatic spending programs such as Medicare, Medicaid, and Social Security are going to spend more each year. By the time today's first graders enter college, these three programs, plus interest on the debt, will gobble up every dollar of tax revenue.

That situation won't just go away by minting a coin. It will take a concerted, serious effort by both Congress and the Obama administration to reform automatic spending programs and control other spending. The debt ceiling requires Congress and President Barack Obama to face the consequences of their actions. Using gimmicks to avoid that just makes matters worse and leaves a worse problem to our children.

To paraphrase pundit H.L. Mencken, for every complex problem, there is an answer that is simple, easy to understand, and completely wrong. The trillion dollar coin is just plain wrong.

-David C. John is a senior research fellow in Retirement Security and Financial Institutions in the Row Institute for Economic Policy Studies at The Heritage Foundation.

First appeared in The Examiner.

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