U.S. Markets closed

The Truth Behind The $1 Trillion Coin

Tim Parker

It's just silly - that's what it is. If you haven't heard about the $1 trillion coin, here's the story. The year was 2011. Both political parties were - surprise! - bickering about something they had been rubber-stamping for decades - the debt ceiling. The debt ceiling is the amount of money that the government is allowed to borrow to meet existing debt obligations. Once the debt ceiling is reached, the government can no longer pay its bills. You might ask, "Wouldn't it be more helpful to bicker about whether or not to spend the money in the first place, instead of whether or not to write the check and pay the bill?" Most people would agree with you and if history is any indication, decades worth of government officials did too. But since 2011, whether or not to pay the bills has become a debate.

Ready for a Fight
Since the fiscal cliff debate was so "problem-free" the last time around, everybody is looking forward to the 2013 rematch of republicans versus democrats concerning the debt ceiling.

Republicans are signaling a battle while Obama has said that he refuses to engage in a fiscal cliff debate. Seem a little absurd? Rep. Michael Burgess (R-Texas) thinks so. He said, "It's the most preposterous thing I've ever heard. He's going to have to negotiate."

You are likely thinking, "What does the debt ceiling have to do with a coin?" Everything - and that's the "preposterous" part of it. Somebody found a loophole. The Treasury can't just print money at will. If it could, your next McDonald's cheeseburger could cost $500.

It is also not allowed to mint gold, silver or copper coins whenever it wants, but get this: there's nothing in the law that says it cannot mint platinum coins. Using this loophole, the president could order the U.S. Mint to mint a few $1 trillion coins, have them deposited at the Fed, and use the money to pay the bills.

A Giant Coin
Your next question might be, "How can a single coin be worth $1 trillion?" The answer is that it's not, but that's complicated. Platinum goes for about $1,600 per ounce meaning that by market standards, the $1 trillion coin would need to weigh about 21 thousand tons. That's a big, fat coin.

But the federal government can assign the coins any value that it wishes even if it isn't the current market value. The material used to make paper money doesn't have as much value as the stated value on the note. The Silver Eagle coin is worth far more than the $1 that is stamped on it so why not just make a coin and say that its worth $1 trillion?

Constitutional or Not?
Some say it's constitutional, while others, such as CNBC's John Carney, say it most likely isn't. Some say it would cause the nation's money system to implode, and others say it will not cause any problems since the government does not pay its bills with anything having physical value anyway. Their case is that the coin is nothing more than a shiny accounting move.

Alas, there's another problem that ABC News brings to light. When a coin is in the works, the specs for that coin have to be approved by those people who can't seem to get along - Congress!

The Bottom Line
If it seems a little silly that Congress cannot come to an agreement about the debt ceiling without ideas like this actually being considered, it is. The chances of this idea standing up to legal scrutiny, however, are slim at best, especially if you believe the hordes of experts who have taken the time to research Constitutional law on the subject. Aren't you glad to know that a battalion of "experts" looked into the possibly of paying $1 trillion worth of debt with a coin that couldn't even buy a big screen 3D TV?

More From Investopedia