OPINION The so-called Fiscal Cliff has been averted. But the country actually has a much bigger issue — the debt ceiling.
For the uninitiated, the debt ceiling is exactly what it sounds like, an artificial limit imposed by Congress the keep the president from borrowing money. The ceiling was originally passed back in 1917 to prevent the government from excess spending during the First World War. Besides its constitutionality being questionable, it’s also useless and dangerous.
The far right goes bananas about the national debt, and points to the ceiling as a way to keep it from growing. But the debt growth in question is simply to pay back bills on products and services that Congress already used. So to impose a ceiling now is not to cut growth, but to default on US creditors.
The Republicans are refusing to raise the debt ceiling unless they get huge cuts in social programs — and if current spending hits the ceiling, the United States would be unable to pay its bills.
But there’s a solution, a way President Obama could get around the GOP and its threats altogether. It’s a unorthodox — but legal. Call it debt hacking.
Obama could simply direct the Treasury to print a series of platinum coins in denominations of at least $1 trillion. It’s not perfect, and it’s not without potential cost — but compared to defaulting on debt or cutting Social Security and Medicare, it’s not a bad option.
The president is legally barred from asking the US Mint to print more money — gold coins or paper bills — without the permission of Congress. But under an obscure 1996 law, there’s an exception for platinum.
So upon realizing that the GOP leaders in Congress will push the republic into default, President Obama could direct the Mint to produce, say, three coins — each with the face value of $1 trillion. The coins would be deposited into the general treasury account at the Federal Reserve. This would then be converted into credit to buy back and retire enough debt to give Obama, and the country, some breathing space.
In fact, Obama could do something even bolder and create more coins, to go beyond breathing space and pay off almost all the national debt except for that held by Social Security. But that sort of action — the government just printing new money — can, many economists warn, create hyperinflation.
Still, the Federal Reserve magically produced about $30 trillion to help bail out banks not long ago, and there was little discernible inflation. The government wouldn’t actually be creating new money — it would simply be replacing debt that the country pays interest on with paper (or digital accounting) that it doesn’t. And right now, inflation is the least of our national worries; a little inflation might even help homeowners and those with heavy credit-card debt pay off what they owe with cheaper money in the future.
Of course, no government can do this on a regular basis. The US Dollar could lose its reserve status if investors start to fear the potential of future platinum coins appearing. But what are the alternatives? US dollars and US debt are, and will remain, trusted investments. China may not purchase as many bonds in the future, but the money we save on interest payments could be well worth it.
It’s a crazy idea, but these are crazy times — and if the GOP continues to threaten to destroy the economy, Obama might want to consider something bold.
Johnny Venom is an economist and commodities trader.