For many years, the subject of the national debt of the United States had more percipient commentators wonder – sometimes even aloud – whether they actually know anything about anything. How can what is nominally the world’s most powerful country run an exponentially-increasing deficit that is public knowledge – indeed, prominently displayed on a dedicated clock (which, ironically, has run out of digits) in New York City’s Times Square – and yet not experience a proportionate decrease in domains such as international prestige or perceived credit-worthiness?
Recent years, however, have seen the formerly invincible one-time ‘hyperpower’ begin to resemble an all-too-human entity: the summer of 2011 saw the United States flirt with outright default, with China’s Xinhua news agency giving the US government a very public dressing-down; towards the end of 2012, the term ‘fiscal cliff’ entered the global public’s consciousness in an unforgettable manner. Now, with the American administration once again engaged in the governmental equivalent of rummaging round the back of the sofa for a bit of spare change – a fiscal ‘Valentine’s Day Massacre’ looks to be on the cards – a proposal has been floated for the US Treasury to create a trillion dollar (US$1,000,000,000,000.00) platinum coin and deposit it with the Federal Reserve in exchange for the same value of loans.
Technically, the coin would be issued as a commemorative one, a process permitted by a hitherto obscure 1997 law – and therefore an ingenious stratagem to circumvent the need for the United States Congress to agree to an additional trillion dollars of debt. But while a wonderfully convenient method for the executive to get their paws on a pile of ‘free’ cash, we at Mediolana have some doubts as to whether this is a viable path:
1. Democracy? The idea that the US Treasury could bypass the elected Congress in such a brazen fashion does nothing to augment already-tarnished American claims to be a democratic exemplar.
2. A Bad Impression. Creating a trillion dollars out of thin air by coin seignorage is, to put it mildly, on the desperate side; that it is being seriously contemplated gives the watching world the perception of a country which is running out of viable ideas faster than most would wish to accept.
3. A Concerning Pattern. The United States seems to be lurching from one financing crisis to another with increasing frequency, with not even close to one quarter having passed since the sighting of the ‘fiscal cliff’. How its creditors react to this trend may well define the present epoch.