Why the Fed killed the $1 trillion platinum coin

The dream of a $1 trillion platinum coin is dead. "The Treasury Department will not mint a trillion-dollar platinum coin to get around the debt ceiling," Ezra Klein reports in The Washington Post, citing Treasury spokesman Anthony Coley. And "if they did, the Federal Reserve would not accept it." From its humble May 2010 beginnings in the comments section of monetary policy blog The Center of the Universe to its embrace by financial bloggers Joe Weisenthal and Josh Barro, economist Paul Krugman, and former U.S. Mint director Philip Diehl, the idea of the platinum coin had become something of a media obsession, little loved but certainly entertaining — and deemed, at least in some liberal quarters, necessary to keep the U.S. solvent.

The platinum coin exploited a loophole in a 1997 law declaring that "the Secretary of the Treasury may mint and issue platinum coins in such quantity and of such variety as the Secretary determines to be appropriate," as long as it doesn't run afoul of "any other provision of law." The Obama administration refused to rule out the scheme last week, but wasn't enthusiastic about it. But "it was the Federal Reserve that killed the proposal," says Zeke Miller at BuzzFeed. The independent central bank refused to "buy into the gimmick" and "would not have credited the Treasury's accounts for the vast sum for depositing the coin," making it worth no more than the platinum used in its creation (or the amount it would fetch as a historical curiosity).

"There are two interesting things about this," says Joe Weisenthal at Business Insider. First: Since the law pretty explicitly allows the platinum coin, "it seems odd that the Fed would decide that there's some legal tender that it will recognize, and some legal tender that it wouldn't recognize." And second, if BuzzFeed is right, "the White House/Treasury wanted to keep this idea available as a last-second escape valve in case things were about to get that bad."

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Nonsense, says Walter Russell Mead at The American Interest. This quashing of the platinum coin idea is simply a case of the kids "getting rambunctious, so the grownups had to step in." Federal Reserve Chairman Ben Bernanke and the other adults "understand what the kids don't: Money is serious business and playing silly mind games with the public and the markets that undermine faith in the monetary system is a Very Bad Idea." Since the end of the gold standard, the power of money is based on faith, and "that faith is particularly important at moments like this one, when the world's central banks (the Fed not excluded) continue to strain the limits of credulity with unorthodox monetary policies following the financial crisis." Rightly so, "the platinum coin wheeze would have undermined the faith of Americans and foreigners both in the value of our money and of the sobriety and wisdom of those called on to manage it."

Perhaps, says James Fallows at The Atlantic, but "nothing about the magic coin is less logical, or exposes America to more ridicule," than the debt-ceiling showdown, in which Congress thinks it should "decide" whether to agree to pay for programs and tax rates it has already voted into law. That "makes exactly as much sense as it would for a family to 'decide whether' to pay a credit-card bill for goods it has already bought."

Regardless, the platinum coin frenzy "was fun while it lasted," says Philip Klein at The Washington Examiner. But killing the gambit is a winner for Obama. Minting a platinum coin "would have been a huge political gift to Republicans," giving them a big fat target to "mock and attack as a new power grab by Obama" while playing risk-free brinksmanship. Now the onus rests with GOP leaders to keep us from economic chaos. If they fail, America will know who to blame.