Friday, December 7, 2012

Seignorage Saves the Day

My boy Matt Yglesias advocates a novel plan for evading the debt ceiling, inspired by FDR's not-illegal-but-not-clearly-legal-either abandoning of the gold standard in 1933:

Section (k) of 31 USC § 5112, "Denominations, specifications, and design of coins" plainly states that the Treasury Secretary can create arbitrary quantities of new legal tender as long as it's made out of platinum:
(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.
Why did Congress draft a statute that doesn't specify what denominations the platinum coin may be? I have no idea. But it's a gaping loophole in the basic monetary framework of the United States, and pretty clearly allows Secretary Geithner to at least temporarily evade the debt ceiling by financing the government through seigniorage.
I love this plan! It would certainly staunch criticism that the President is not a man of action, and I've been struggling for some time with the question of why we don't print more money when the world sees us as far and away the safest place for investment. A nice trillion dollar coin would be crossing the streams in a very exciting way.

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