Bleaker Prospect for Trillion Dollar Coin Solution

  @ibtimesau on January 10 2013 2:23 PM

A proposal for the U.S. Treasury to mint one trillion dollar coins to address the country's debt limit problem appears headed for defeat despite the support for it by Republicans and some sectors.

On Wednesday, White House Press Secretary Jay Carney ruled negotiations with Congress to raise the debt ceiling which could easily be solved if Congress does its job.

He said the trillion dollar coin solution is merely pure speculation. The proposal is based on an obscure law that gives the Treasury Secretary the ability to mint platinum coins of any denomination. If a $1 trillion coin would be deposited with the Federal Reserve, it would give the federal government the ability to make payments without the need to issue more debt and defuse the possibility of a default because of the debt ceiling.

Some sectors, however, said Mr Carney's answer is neither a yes or no, and when pressed further, he said the question must be addressed to the Treasury Department.

"I answered it thoroughly . . . and I have no coins in my pocket," the secretary later joked.

Although the idea may seem absurd, Nobel Prize winner economist Paul Krugman has endorsed it. "Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely," wrote Mr Krugman who once headed the U.S. Mint.

Foreign exchange trader Mike Casey warned of the impact of such a move on the U.S. dollar.

"Even if the government were to take advantage of the legal loophole that liberal pundits have gleefully uncovered, once it began drawing on the reserves it created at the Fed, the central bank would issue certificates to absorb excess currency and keep the money supply in check. This isn't a 'monetize the debt' proposal that threatens hyperinflation. It's a political maneuver, nothing more," The Wall Street Journal quoted Mr Casey.

Bloomberg cited a source close to Treasury Secretary Tim Geithner that the latter is also very skeptical of the proposal.

U.S. Rep Greg Walden (R-Ore) has announced plans to introduce a bill to ban the minting of a $1 trillion coin.

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