Rathbun: Forget the gold standard, let’s go platinumWritten by Gary Rathbun | | GaryRathbun@PrivateWealthConsultants.com
I received an email chastising me for advocating America go back to the gold standard. The writer said it was a waste of time to talk about it because there isn’t enough gold in the world for us to cover the outstanding currency the Federal Reserve has issued.
In my usual charming way, I talked about this on air and said that while I agreed there was not enough gold to cover our outstanding currency, it was only because gold was priced too cheaply. If gold was priced at $1 trillion an ounce then we would have plenty of gold. So my contention is that there is plenty of gold — it’s just not priced properly.
Well, apparently The Washington Post listens to the show, because last Friday it came out with an article indicating Congress could legally mint a trillion-dollar platinum coin. The writer says should President Barack Obama want to “avoid an economic calamity next year, he could always show up at a press conference bearing two shiny platinum coins, worth … $1 trillion apiece.”
This would also make it so that Congress didn’t have to go on record voting to raise the debt ceiling. Under the law, the Treasury is allowed to mint as many coins as it wants from platinum and assign an arbitrary value to each coin. So it could, legally and probably constitutionally, create a platinum coin or 10 and send them over to the Fed to hold on their balance sheet at whatever value the Treasury determines.
The Fed would then move the money into the Treasury’s account and presto, you have no more debt problem. Economists will love this because now the debit and credit ledgers will balance. Politicians will love it because they can spend any amount forever without creating any “formal” debt.
This is a politically perfect solution because Congress would have no backlash from the electorate, the president could spend all he wants, the Fed would have even more power and the general population of the U.S. wouldn’t understand or care to understand the consequences of such stupidity.
Platinum is priced at around $1,600 an ounce, so if the Treasury minted a $1 trillion coin either the spot price would go through the ceiling or it would drop to being cheaper than tin. If it went through the ceiling, the dollar would be able to hold its value in the world because it would be backed by a hard asset. If it fell through the floor, then we would be worse off in the world since the dollar would be worth less than it is today.
Making a trillion-dollar platinum coin would essentially be the same as defaulting on our debt. Imagine that someone owes you $100 and instead of paying you back in the same currency that was lent out he decides to pay you in pop bottle caps because he has declared that they are now worth $20 apiece. You probably wouldn’t be very happy unless you were very certain that someone else would exchange the bottle caps for something else of value.
This is likely to happen with the platinum coin idea. As far as an accounting entry, it will make everything nice and neat and probably give the politicians and Keynesian economists a warm and fuzzy feeling. But it will do nothing for the growth of the economy or to keep us the reserve currency of the world.
As for me, I’m going to start saving bottle caps!
Gary L. Rathbun is the president and CEO of Private Wealth Consultants, LTD. He can be heard weekdays on 1370 WSPD at 4:06 p.m. on “After the Bell” and every Wednesday and Thursday at 6 p.m. throughout Northern Ohio on “Eye on Your Money.” He can be reached at (419) 842-0334 or email him at firstname.lastname@example.org.