In the event Congress is unable to agree to a debt ceiling increase by the mid-February deadline and subsequently result in a default, the Obama administration is not ruling out minting a $1 trillion platinum coin.
There are mixed reactions regarding the issue, with claims that there is nothing economically problematic about using such a loophole.
Essentially, Obama has two options if we can assume the debt will only climb higher. The first is to raise the debt ceiling through Congress. We know the chances of this are very low as it would be met with hemorrhaging opposition from fiscal conservatives in the Republican camp, and possibly even the moderates. The second option is for Obama to invoke the Fourteenth Amendment to raise the debt ceiling without the backing of Congress. The White House is ruling this option out, probably to avoid any unpopular, unilateral economic decisions.
The third option (I am fully aware that I said there are only two), is to mint trillion dollar platinum coins to pay for the debt. Platinum, a precious metal more costly than gold (but also more volatile), can be used by the Treasury to mint coins of any denomination they choose. The coins would be deposited into the Federal Reserve and the chosen value would then be transferred to the Treasury. So, there we have it folks! Seventeen platinum minted coins, each to a trillion dollars (or maybe just one $17 trillion coin), and Obama will wipe the deficit out and have 600 million in surplus! This is really what is being discussed, no exaggeration.
As of this writing, an ounce of platinum is currently trading little less than $1,624, in case anyone was wondering if an ounce was worth anything close to $1 trillion. The claim is that this is economically sustainable — that it will not lead to (hyper) inflation because no new money is being printed and it will leave current spending at the same level. Inflation is commonly defined by the rise of price in goods and services. Going by this definition, it is theoretically correct for the proponents of platinum coin minting to say no inflation will occur as a result. However, inflation is something many economic schools of thought do not agree on — from its definition to what causes it.
There are those who claim that inflation is not the rise of prices, but rather the price increase is a consequence of the increase in money supply, the real culprit of inflation. Fiat money is the ability to print money at will, not backed by any commodity, which is how the Federal Reserve has been functioning since 1971 when Nixon abolished the Bretton Woods system pegging the American currency to gold, so that he could fund the war in Vietnam. Thus, inflation occurs regardless of printing or minting, the fact that there is a lack of sound money results in that.
In any case, do not expect Obama to go through with this plan, as it would be too large of a gamble on such a weak economy. It risks being the straw that broke the camel’s back. Except instead of straw, a million pound rock.