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It goes like this: Should Congress fail to extend the U.S. debt limit — reached again on Dec. 31 — the president could ask the Treasury to begin printing trillion dollar coins (in a process explained mostly seriously by Jim Pethokoukis on his American Enterprise Institute blog), a number of which could then be put toward fulfilling debt obligations in the event new legislation stalls in Congress.
While there are laws in place to regulate how much paper, gold, silver or copper currency can be circulated by the government, there is nothing so clearly stated when it comes to platinum. That door open, the Treasury could have the U.S. Mint melt and mold a few trillion dollars of it, then ship the goods over to the Federal Reserve for safekeeping until the time comes to pay the bills.
Since all coins are minted the Treasury and not the Federal Reserve, what prevents the minting of a new trillion-dollar coin made of something like platinum? The Treasury could mint 16 or 17 of these and send them to the Fed to pay off the bonds that come due. This would effectively replace Federal Reserve Debt Notes with debt-free Treasury Coins.
I used to suggest that congress pass a bill to raise the price of gold to a trillion dollars for one day and pay off the national debt with a few pieces of gold. However, bonds come due each month, and not all at once, so the above suggestion is much more feasible. The problem, of course, is that when such huge amounts of money are released from the constraints of debt, we would end up with far too much money in circulation. We would have to do a "lop" to get rid of about nine zeros on each coin.
You see, the system was designed to balance debt with cash, because cash equals debt. This allows the ultra wealthy (who own the money tree) to obtain cash, while the average person balances it out by holding the debts. When it is properly balanced like this, there is little "inflation." They can amass even more money without the slightest ripple of inflation if these ultra wealthy are able to keep their money off the street in the shadow banking system.
A much better way to take those huge amounts of cash out of circulation would be to confiscate the ill-gotten gains of the bankers. Since they obtained their wealth by fraud, they deserve none of it. But to do that, the IMF would have to do something about the shadow banking system where most of this wealth is kept. The shadow banking system is a second banking system available only to the very wealthy and privileged few for the purpose of avoiding taxes. Money is kept there in order to keep it out of the hands of main street, for if such astronomical numbers were to hit main street, the economic effects would be catastrophic.
A few trillion wouldn't hurt, though. Perhaps Mitt Romney wouldn't mind parting with a small portion of his shadow accounts.