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Hello and welcome to another episode of, “Kinda Clickbaity Titles to Get You To Watch Something
Vaguely Educational.”
Today, we are going to talk about trillion-dollar coins—but first, in order to understand
why the US government would ever even consider making a coin that’s worth more than a gold-plated
Jeff Bezos, we have to talk a little bit about the debt ceiling crisis of 2013.
Now that half the audience is gone, the year was 2013, the month was January.
The number one YouTube channel was Smosh, Macklemore’s, “Thrift Shop,” was rising
up the charts, and President Barack Obama had a problem: the US was about to hit the
debt ceiling.
Of course, “what’s the debt ceiling,” says someone, so here’s how the debt ceiling
works.
Each year, Congress passes, and the President signs, a budget that says how much it’s
going to spend on different things.
So maybe it says the government will spend $10 billion on Big Macs, $20 billion on Doritos
Locos Tacos, and $30 billion on Pepto Bismol.
It's then up to the US Treasury to buy all those things.
The Treasury gets the money to do that from two main sources.
The first is taxes, which are collected from the American people and American businesses,
unless you’re Amazon, of course.
The US, you see, goes for the rare graduated bell curve tax bracket system.
Typically, though, that tax money isn’t enough, so the Treasury will make up the difference
by borrowing money, which is done by issuing something called a treasury bond.
Basically what happens is the Federal Reserve, which is the central bank of the United States,
says to everybody, “hey kids, if you give me $100 right now, I’ll give you this super
cool piece of paper, which is called a treasury bond,” and what this piece of paper says
is, “In exchange for your $100, a year from now, I’ll give you back your $100 plus a
little bit extra.
Or, if you want to wait longer, like 3 or 5 or 30 years, I’ll toss in a bit extra
for your trouble.”
So, people buy these bonds, the Fed takes their $100, puts it into the bank account
of the Treasury, and now, just like magic, the government has a brand new $100 that they
didn’t have before.
As time has gone on, the US government has issued more and more treasury bonds, and thus
taken on more and more and more and more and more debt—seriously, like a lot of debt.
The debt ceiling is an arbitrary number that Congress sets as the maximum amount of debt
the US is allowed to take on.
In 2013, the number was $16.394 trillion.
So if the debt were to pass $16.394 trillion, then the Fed wouldn’t be allowed to borrow
any more money, which means the Treasury wouldn’t be able to buy all those crucial things in
the budget.
Normally, when the debt approaches that number, Congress just raises the debt ceiling, which
means they just set a new, higher number as the limit, and historically, this was a pretty
uncontroversial, bipartisan process.
But in 2013, the Republican-led Congress refused to raise the debt ceiling unless Obama agreed
to get rid of Obamacare.
Unsurprisingly, Obama said no to this deal because, you know, it turns out that Obama
kinda liked Obamacare—that would be like asking me to stop mispronouncing obscure words
like buffet; it was kinda Obama’s thing.
And so, Obama began looking for ways around the debt ceiling.
That’s where the trillion-dollar coin came into play.
The idea was, if the government can’t borrow more money, what if they just made more money?
While that may sound like the type of idea only a drunken second grader would suggest,
bizarrely, in this case, it actually made sense.
See normally, only the Federal Reserve can create new money, and it has to be backed
by bonds.
In other words, if the Fed wants to create 100 new dollars, they have to sell a $100
treasury bond.
This helps keep the US economy from imploding in case some maniac ever gets at the controls.
They can’t just print as much money as they want, except, thanks to a loophole in a 1996
bill about commemorative coins, the Treasury actually can.
The law, 31 U.S.C 5112(k), reads, "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 intent of this law was to let the federal government create commemorative platinum coins
for special occasions, but technically, because of the bill’s unclear language, it meant
that the Treasury Secretary could make a coin, so long as it was made of platinum, and then
declare that it was worth any amount of money they wanted.
So the plan was for the Treasury to mint a coin, declare that the coin was worth 1 trillion
dollars, then deposit that coin into their bank account at the Fed, which would make
the debt, instead of being $16.394 trillion, only $15.394 trillion—below the ceiling.
Eventually, once Congress raised the debt ceiling, the Treasury would just buy the coin
back or melt it down, and in theory, it would be like it never existed, and thus it wouldn’t
cause inflation.
Now I’m going to tell you something that might disappoint you: although the trillion-dollar
coin was genuinely considered by the White House, they never went through with the plan,
so no trillion-dollar coin was ever actually minted.
I know, I know—the title of the video kinda made it seem like they actually made the coins,
but you know what, the Greeks made it seem like they were just gifting Troy a cool wooden
horse.
Not everything is as it seems.
On the bright side, now you know a bunch about treasury bonds and debt ceilings, which will
come in handy the next time you’re on a date and modern US monetary policy comes up,
which I have to imagine happens all the time.
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