Coin Seigniorage – Legal Response To Debt Ceiling Crisis

-Submitted by David Drumm (Nal), Guest Blogger

Coin seigniorage (CS) is the net revenue derived from the issuing of coins. It cost less than one dollar to mint a dollar coin and the difference between the manufacturing costs and face value (one dollar) is pure profit for the Treasury. The United States could just print more paper money, however, there is a statutory limit to the amount of paper currency in circulation at any one time.

There is not, ironically, a similar statutory requirement on the amount of coinage. The idea of using CS to solve the debt crisis is garnering a lot of serious attention.

Congress provided the authority, in legislation passed in 1996 that states:

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

The face value of the coins is arbitrary. The Treasury can create a couple of $1 trillion coins, deposit them in its Public Enterprise Fund account at the Fed, and the Fed must credit that account with the face value of these coins. Result: $2 trillion to pay our financial obligations.

Jack Balkin, Knight Professor of Constitutional Law at Yale Law School, has given reasons why the government has not discussed the option publicly:

There are three reasons for this. First, there may be other legal obstacles to using these options that we don’t know about. Second, because these devices could be used over and over again, they might scare investors and be politically unacceptable. Third, the president’s political strategy has been to obtain a congressional deal lowering the deficit, and these solutions would take all the pressure off Congress.

If Congress fails to pass a debt ceiling increase, all bets are off.

H/T: FDL, Corrente, Felix Salmon.

23 thoughts on “Coin Seigniorage – Legal Response To Debt Ceiling Crisis”

  1. I think the Prez can’t and won’t resort to creative means to get past this log-jam because what is waiting for him the day after he does is Articles of Impeachment and he’s a coward.

    Personally, I’d be OK with him invoking the 14th Amendment if the debt ceiling isn’t raised, and sending Federal Marshall’s to round up everybody that votes against doing so as terrorists. He has the power, on paper at least to do so. Or is that just to have enemies of the nation shot? Now that would be an interesting afternoon of talking heads on TV 🙂

    I’m waiting for the last minute compromise that doesn’t include revenue. Same old, every time, on everything. The president has lost all entertainment value for me. 🙂

  2. Frank: “The reason is that there are fewer workers, they are making less money and are scared their job may not be there next week. As a result they are not spending like they did in past years. Without demand pressure inflation can be discounted. It would come back if Americans ever get hired again.”
    The people that have the most money aren’t spending it and a significant number of the rest of us middle-class and working class folks can’t spend unless it’s done with a credit card. People are afraid and its over more than worries about their jobs; they’re living on short-term loans, which is what a credit card is, and the interest is killing them. People can’t/won’t spend what they don’t have if they see the credit trap for what it is.

    You’re right though, more jobs! I would add that the entire corporate relationship would have to be realigned in order to return to a manufacturing base and our trade practices and treaties would have to be renegotiated or broken.

    balance of trade: (close spaces)

    http: //endoftheamericandream. com/archives/america-is-rapidly-bleeding-wealth-and-jobs-28-statistics-about-the-gutting-of-the-u-s-economy-that-will-blow-your-mind

    Solar and wind jobs migrating to China: (two parts)

  3. the platinum coin idea sounds great but I doubt that the president knows about it. I saw it mentioned on CNN but they also also talked about the 14th amendment idea and another idea at the same time. The platinum coinage idea needs to be told to the president by itself because the president already rejected the 14th amendment idea. Talking about all these ideas at the same time gets confusing.

  4. suck all of the oil and natural gas from under texas, then sell what’s left to the saudi’s as vacation property while we invade canada.

  5. At least borrowing a trillion dollars against a one ounce platinum coin provides some kind of collateral, unlike the rest of our debt.

    I suppose the first $14.5 trillion is backed by a lifetime of taxes the unborn have yet to pay at their new global wage rates.

    What a bargain those great-grandkids are getting… I can see every penny of that $14.5 trillion in tens of thousands of crumbling seventy-five year old bridges, perpetually clogged highways, and rusting water mains.

    Oh, and half a planet that has it out for them after living under the thumb and theft of the US empire and her puppets.

  6. So this would be a fiction? Aren’t greenbacks a fiction since their value is sustained by the credit of the federal reserve system and the us government? Too bad the GOP caucus isn’t a fiction.

  7. This is a very interesting discussion. Forgive my total ignorance in this matter but, could the fix honestly be that easy?

  8. Coin seigniorage.

    I hope this is how they “solve” the so-called crisis. It will underscore to the world just what a banana republic the United States has become.

  9. From the link above:

    But one really has to show that the likelihood of inflation is greater if we use coin seigniorage than it is if we issue more debt instead. My view is good luck with that, because there are very good reasons for thinking that coin seigniorage would actually be less inflationary than issuing debt to close the gap between taxes and spending would be.

  10. I find myself actually agreeing with kderosa and Roco on the wisdom of quantitative easing as a policy. Although I see no inflation risks at present because consumer demand is going nowhere given our apparent determination to embrace economic austerity, I also believe that expediency will always trump reason in the conduct of public affairs. Once we start minting coins to pay debt, it will eventually come to be viewed as an easy fix and inflation is sure to follow.

  11. That’s why I said “can cause” inflation. The idea behind quantitative easing is to stimulate GDP. It didn’t much inflation, see commodity prices and dollar weakness, but they also didn’t stimulate GDP much either. Essentially, the theory either has failed or there are other problems with the economy. I’m thinking the current administration’s hostility to business is the major problem and their failure to fix the financial and housing markets that they helped break is as well.

  12. While it certainly can cause inflation you have to admit neither QE1 or 2 did even a tiny bit. The reason is that there are fewer workers, they are making less money and are scared their job may not be there next week. As a result they are not spending like they did in past years. Without demand pressure inflation can be discounted. It would come back if Americans ever get hired again.

  13. We don’t need to mint coins or print more money to do quantatative easing, as it’s called. It’s all done electronically now. That’s what they did with QE2. And, as Roco points out it tends to debase the currency and can cause inflation.

  14. “…If Congress fails to pass a debt ceiling increase, all bets are off.”


    I could not agree more. It appears there is more than one way to solve the problem. The Administration could do it, then let it wind its way through the courts for years. By that time, it would be a fait accompli and thus a moot point.

    I saw where Rep. Darrell Issa thought starting an investigation on Obama’s fundraising, “…would be good theater.” Not that we have other things going on, like two foreign wars, health care at home, a failing infrastructure, high unemployment and caring for returning combat vets. What we really need is some good theater coming out of the House of Representatives. Reminiscent of the Roman approach of giving the people circuses rather than solving problems.

  15. SWM,

    Just because he teaches at Yale does not mean they are sane….Even patent Attorneys can be some pretty strange ducks….Bat S… crazy…..

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