THE MAN WHO INVENTED THE TRILLION-DOLLAR COIN

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V26 2023 INDEX E-SYLUM ARCHIVE

The E-Sylum: Volume 26, Number 23, June 4, 2023, Article 29

Pablo Hoffman passed along this great New York Magazine profile of The Man Who Invented the Trillion-Dollar Coin. Thanks! -Editor

About a dozen years ago, a pseudonymous commenter on a financial website, writing under the name Beowulf, presented an unusual solution for a debt-ceiling standoff: If the federal government was at risk of default, and Congress couldn't agree to either cut spending or raise the borrowing limit cleanly, couldn't it simply mint a trillion-dollar coin?

Beowulf had come across a 1997 law that, in response to requests from coin collectors, gave the Treasury the power to mint platinum coins of any denomination. (Collectors had complained that even coins available at the time with the smallest face values were still too expensive to afford.) The law started as a way to make collectible coins cheaper, but unlike every other law regulating new coins, this one did not establish a specific face value or limit the number of coins produced.

Congress screwed up, Beowulf wrote. By passing the law, it had given the president the authority to direct the secretary of the Treasury to mint a coin of any value — say, $1 trillion — and deposit it in the Federal Reserve, which would be legally obligated to accept it. Ultimately, the coin's deposit would result in $1 trillion in government revenue or, with a coin of a different denomination, however much was needed to continue to pay its bills and avoid a default. The catch is, it's gotta be made of platinum, Beowulf wrote. Ditto the balls of any president who tried this.

In the time since, the idea has gained an unexpected acceptance among policymakers and economists. In 2013, Representative Jerry Nadler said that the idea sounds silly, but it's absolutely legal. Shortly after, Paul Krugman asked himself in the New York Times if the president should be willing to mint the coin to avoid default. His response? Yes, absolutely. Phillip Diehl, a former director of the Mint and Treasury chief of staff who co-wrote the 1997 law, allowed that a coin with a specific denomination of $1 trillion was an unintended consequence but maintained that the possibility was always conceivable. In principle, there is nothing new, he has said. Any court challenge is likely to be quickly dismissed. In 2020, Representative Rashida Tlaib sponsored a plan to mint two coins to fund pandemic aid, and this year both Treasury Secretary Janet Yellen and Federal Reserve chair Jerome Powell have faced questions about using the coin to end the standoff. Each registered objections, but neither would rule it out.

As it turns out, Beowulf is not an economist or a professional policy wonk. He's a Georgia lawyer named Carlos Mucha. Criminal defense, shareholder disputes, a little of everything, he told me recently. He's a tinkerer — Jack of all trades, master of none, he says — and his frequent visits to the comments sections of a set of financial websites were a kind of hobby.

What got me thinking about it was that I was reading that people were using their credit cards to buy tens of thousands of U.S. dollar coins from the Mint just to get the credit-card points, he said. At the time, the Mint had free shipping and handling, and since it's from the government, the coins are tax free. They would charge $10,000, get ten thousand one-dollar coins, and use the coins to pay off their card. This really happened — one such dollar coiner told The Wall Street Journal that he took 15,000 coins straight from the delivery truck to the trunk of his car, to more easily drive them to the bank. You don't have to do that too many times to get a free first-class ticket, Mucha said.

A few savvy points hounds found a way to create free flights out of thin air. But Mucha was more fascinated by the other side of the transaction. The more interesting point is that after all the expenses and the shipping and handling, the Mint's profit on every dollar coin was 80 cents, he said. The path of a coin from the Mint to your pocket goes like this: The Mint creates a dollar coin, then sells it to the Federal Reserve at its face value, which, in turn, sells it to a bank, where it enters the broader economy. In these transactions, the bank and the Fed spend a dollar to get a dollar. But the Mint receives a dollar for a coin that cost only about 20 cents to make. The difference between the face value of the coin and the cost of producing it, known as seigniorage, is 80 cents — revenue that would appear on the Mint's books and could be sent to the Treasury to pay down the deficit.

This is sometimes called making money by making money. Mucha's coin would work on the same principle. You don't think about it, but one of the powers of the government is to create money by the stroke of a pen, minting coins, he said.

Mucha felt especially vindicated by the responses from Yellen and Powell earlier this year when asked about the possibility of minting a trillion dollar coin. Yellen simply said it was up to the Federal Reserve. It truly is not by any means to be taken as a given that the Fed would do it, she said. It's up to them. A few days later, a reporter followed up with Powell to ask if the Fed would do whatever the Treasury directs to resolve a crisis, or if it would perform its own analysis first.

All he said about it was that ‘we are Treasury's fiscal agent, and I'll leave it at that,' Mucha said. That's a very lawyerly answer. An agent works for a principal. So basically, he was saying, ‘If they deposit money, we gotta take it.' It was an extremely diplomatic game of passing the buck, but the subtext was clear: The chairman of the Federal Reserve, the most powerful monetary official in the world, had been asked to reject an idea hatched by a pseudonymous blogger in 2010, and his sense of professional duty wouldn't let him do it.