Federal Reserve Would Probably Go Along With $1-Trillion Platinum Coin Plan, Says Former Director of U.S. Mint
The Federal Reserve System would likely accept a $1-trillion platinum coin at face value, even though the Chinese and other creditors probably would not, according to the former director of the U.S. Mint who helped craft the now-controversial 1996 law.
Phil Diehl was director of the Mint from 1994 to 2000, and worked with former Congressman Mike Castle (R, DE) to write the law that is now being touted as a way to bypass the legal limit on federal borrowing. Diehl’s first broadcast interview was Friday morning on “Istook Live!” with host and former Congressman Ernest Istook.
Proponents, mostly on the political Left, have touted the coin as a way to evade Republican demands that federal spending be cut before any new borrowing authority is allowed. The Treasury has already reached its $16.4-trillion debt ceiling. Extraordinary measures are being used to keep operating, but likely will be exhausted by mid-February.
Istook pressed Diehl on why the Fed would treat a coin as worth a trillion dollars and allow government to draw against those funds, when creditors such as China or Japan obviously would not accept it to pay off what the U.S. owes them (which is over a trillion dollars with each of those countries).
Diehl said, “The way this works is exactly the way it works with a quarter.”
The Mint takes a piece of metal and stamps it with a value, then sells it to the Fed for that amount, he said, and added, “The only difference here is a bunch more zeroes on the face value. The principle is exactly the same, the accounting procedures, the production procedures, everything is the same as a quarter.” He said he believes the Fed would see this as “quite similar to the quantatative easing policies of the Fed, and some wags have called this platinum easing.”
Diehl defended the potential use of the special coinage law, although admitting, “We obviously never anticipated that the law would be used as a way of dealing with the debt ceiling.” The intent was to provide a means for investors to invest in American precious metal coins. The law authorized platinum coins in whatever face value the Secretary of Treasury desires.
That was one of the two unusual wrinkles in the law, he says: That the Secretary was given discretion to issue such coins or not, and was given discretion on the face value.
Istook made it abundantly clear to Diehl that he was not convinced, but thought it important that the public hear more details about this speculative proposal.
Click here to hear the full interview.