The U.S. Government Plans To Default On Debt The Dishonest Way

Debt troubles in China and Washington, D.C. helped boost safe-haven demand for precious metals early this week. By Thursday, however, investors piled back into stocks and sold safe havens like gold and silver again.

Platinum is making news for an unusual reason that has nothing to do with its primary demand sources in the automotive and jewelry industries. Instead, it has to do with the political fight over raising the debt ceiling.

Some Democrats are proposing that the Treasury Department issue a $1 trillion platinum coin as a way around the need to increase borrowing capacity.

Legal loopholes apparently allow for platinum coins, in particular, to be issued with any face value the Treasury Secretary sees fit to designate. The proposed trillion-dollar coins could then be deposited at the Federal Reserve, which would credit the government’s account with the cash it needs to pay its bills.

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It may seem ridiculous, but the idea was taken seriously by economists who originally floated it to the Obama administration during debt ceiling standoffs in 2013.

Even though trillion-dollar platinum coins would put precious metals back into the monetary system, they would only be used as props to facilitate massive new currency printing by the Federal Reserve.

Of course, proponents of modern monetary theory believe that the government should just be able to print whatever currency it needs to pay its bills – sidestepping the need to borrow from the bond market or sell assets to the central bank.  Of course, as it currently operates, the Federal Reserve System is nothing more than a charade for direct government money creation.

The Federal Reserve’s ongoing Quantitative Easing programs are a step toward total debt monetization. And now that the Fed is the largest single buyer of government bonds, it may never be able to extricate itself from that role without triggering a massive political backlash in Washington.

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