Days ago, a Yale Law professor wrote an op-ed for CNN that mentioned a crazy-seeming idea for averting a debt meltdown that doesn't sound crazy anymore: have the Treasury Department exploit a loophole to mint two $1 trillion coins and use those to pay off our debt. Since then, the long-circulating idea has been revived among mainstream policy wonks with the equal parts amusement (why not just one $2 trillion coin?), enthusiasm (the president is obligated to tell Geithner to do this), cynicism (anything to distract from the DC spectacle) and curiosity (what size would it be?). Here's how the idea was unpacked. Caveat: this seems an awful lot like just another symptom of debt ceiling fatigue.
Two $1 Trillion Coins - This was only one of CNN contributor and Yale law professor Jack M. Balkin's suggestions for solving the debt crisis, but it was the most enticing:
"A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds."
The Tentative Argument In Favor - Matthew Yglesias points to the specific language of the statute in his post, then adds:
It actually seems to me that there’s a colorable argument that President Obama is legally obliged to order Secretary Geithner to order the mint to start creating large denomination platinum coins.... The assumption is that starting August 2, the Treasury will start 'prioritizing' payments. But whence the legal authority to do that. By contrast, the legal authority to mint platinum coins is right there in the statute.
That Idea, Seconded - The Economist's Free Exchange blog clarifies Yglesias's idea:
To prevent the money from contributing to too rapid inflation, the Fed could simply conduct reverse QE—sell some of its enormous stock of government debt to absorb some of the new money in the system. Though it's unlikely that inflation would be too serious an issue; indeed, it could be helpful.
But Why It Won't Happen - CNBC's John Carney attempts to pop the fantasy (and then goes on to create his own: handicapping how big or small the size of the $1 trillion coin might be):
[L]et's acknowledge that the creation of an extra trillion dollars would be highly inflationary. It would probably be a terrible idea. Our creditors would object that we were blatantly monetizing our debt, committing the moral equivalent of defaulting on the debt. Basically, cheating them.