A once-laughable idea continues to gain traction.
PIMCO's Mohamed El-Erian took to Fortune magazine on Friday to further explain the trillion-dollar coin as a solution to the coming debt debate in Congress.
"The platinum coin option is, according to many experts, a perfectly legal way for the administration to preemptively remove the threat of another debt ceiling debacle in the next few weeks," El-Erian begins, before briefly explaining conventional wisdom as to how it world work.
Under legal authority it already has (which is meant for decorative coins), the U.S. Treasury would issue to itself a very large platinum coin—say a single, trillion-dollar denomination, he writes. The coin would be deposited in the Treasury's account at the Federal Reserve. Against this "credit," the Treasury would withdraw from the central bank more conventional forms of money and use them to meet payment obligations that have already been approved by law.
"The key here is that the Treasury would raise money without borrowing. Thus, the increasingly binding debt limit would not apply; and congressional Republicans would be unable to hold the country hostage as happened just 18 months ago."
How about the market implications, he rhetorically asks.
"I suspect that market reaction would be generally calm if the option were used as a way to diffuse what could otherwise be a repeat of the debt ceiling debacle in the summer of 2011—when political brinkmanship and bickering harmed growth, risk assets and the country's credit rating."
