The Fed’s Commemorative Coin Collection

With another go-round of the debt ceiling debate already in the offing, some creative solutions are being floated. Like the increasingly discussed idea of minting a commemorative coin for the debt ceiling. Now, the coin isn’t meant to be sold to the public to honor the debt ceiling’s great contributions to America. Rather, the purported aim is to expressly solve it.

Across the web, advocates and opponents are debating the possible creation of a $1 trillion platinum coin to fund the government without issuing more debt—an end-run around (yet another) debt ceiling debate. As the theory goes, the Treasury, thanks to a loophole allowing the creation of platinum coins in any denomination, could mint a couple of coins worth $1 trillion each and deposit them at the Fed. In turn, the Fed would then write checks against the coins to cover the government’s bills. No more debt ceiling. No more debt ceiling debates.

You might ask: Why platinum? Why $1 trillion? Which are, of course, excellent questions. But we have another: Why bother in the first place?

To revisit, the debt ceiling is primarily a political machination, used now mostly as a wedge issue for politicians looking for (re)election. It’s effectively window dressing, allowing politicians to argue they’ve “restrained” debt. The debt ceiling, however, doesn’t limit anything at all. Exhibits 1 through 105 of that principle are the debt limit increases since 1917—not exactly the disciplined debt brake politicians would have you believe.

Debt is, of course, created by spending. Switching the US debt accounting method from a ceiling to coins seemingly doesn’t address the fact Congress, not the Treasury nor the Fed, decides what to spend. Ironically, the same Congress that manages the spending manages the limit. So, assuming the coins are created and go to the Fed, what happens when the coins have been spent? Does the Treasury mint another (and another and another) until the Fed has a collection of these coins? Or does it just declare the coins are now worth $1.5 trillion each? Or $2 trillion? Either way, we’re back to square one.

In the end, creating a $1 trillion coin to avoid the debt ceiling seemingly only commemorates the fact we still have a largely arbitrary “limit” on how much debt politicians say the US can hold. (Maybe the motto on the back could read, “Ex platinum, arbitraria limitem.”) Which, in reality, addresses nothing. It isn’t likely a longer-term solution than a similar-sized increase to the debt ceiling itself. And politically, our guess is platinum-coin ceiling legislation would be soon to follow. Errr—wait—it’s already being discussed.

Instead of creating an arbitrary marker (the coin) to replace another arbitrary marker, in our view, it makes more sense to just eliminate the debt ceiling altogether. We’re not in favor of ever-increasing government spending, but that’s actually an unrelated issue. What is related is compound growth, and if you show us one debt ceiling (or platinum coin) we’ll show you another ... and another ... and another.

But the debt ceiling’s abolition seems highly unlikely to come to fruition anytime soon. In the end, whether or not folks realize the coin isn’t a better solution than the ceiling isn’t what matters. Realistically, the debt ceiling is popular in Washington for what it doesn’t limit—or rather, for what it increases: Political grandstanding and rhetoric.