Also turning up are all pundits, politicos, reporters, and sycophants explaining why the U.S. Mint should or should not strike the coin. The problem is that EVERYONE IS WRONG!
Let’s look at the FACTS.
FACT: Before a coin leaves the U.S. Mint, the purchaser must pay for the coin.
The Federal Reserve purchases business strike coins at face value. The money is deposited in the U.S. Mint’s Public Enterprise Fund.
Collectors pay for collector coins through the U.S. Mint’s retail and e-commerce operations. When the money is collected, they deposit the funds in the U.S. Mint’s Public Enterprise Fund.
FACT: The United States Mint has successfully argued in court that a coin is not legal tender until it is paid for.
After the U.S. Mint discovered the existence of several 1933 Double Eagle coins that were supposedly melted, the Secret Service investigated and seized several coins. Through the 1950s, government lawyers argued that the coins were government property since the coin was never monetized.
During the case of the Farouk-Fenton double eagle coin, the government used the same argument. Even though there was an export license for the coin issued to King Farouk of Egypt, the government maintained that the lack of monetization made the coin illegal.
As part of the $7,590,020 paid for the 1933 Double Eagle in 2002, $20 of the purchase price was paid to the U.S. Government to monetize the coin. When Sotheby’s sold the coin in June for $18,872,250, the coin came with a certificate from the U.S. Mint declaring its Legal Tender status.
If the U.S. Mint does not monetize a coin until someone or entity buys it, then how will striking a $1 trillion coin help anything?
Even as crazy as government generally accepted accounting principles (GAAP) may appear to the commercial market, Government GAAP still requires double-entry bookkeeping. In double-entry bookkeeping, if an asset is added to one part of the ledger, there must be a debit on another.
Forget the political arguments about the debt. When the government needs money, it sells bonds to finance its obligation. The bond is the created asset, as the coin. The asset is purchased, adding cash to the general treasury. In bookkeeping terms, an asset entry and an associated debit entry.
Who is going to buy the coin?
The Federal Reserve is not going to buy the coin. Bonds, warrants, and other investments have tangible returns. The investments have value and can be traded on the equity markets keeping the books balanced. What happens if $1 trillion is tied up in a non-investing asset?
If the Federal Reserve buys the coin, the general treasury may see a $1 trillion windfall, but the Federal Reserve will have $1 trillion less economic power. It is $1 trillion less in short-term loans to large financial institutions and quantitative easing that is keeping the economy in control.
If the Federal Reserve buys the $1 trillion coin, it will create a $1 trillion hole in the economy.
The U.S. Gross Domestic Product (GDP), the monetary value of all goods and services, is estimated at $22.675 trillion. Taking $1 trillion out of the economy will reduce the economy by 4.4-percent.
As the Great Recession of 2008 raged, the GDP lost 1-percent of its value by 2009. If a one percent drop caused the most significant economic calamity since the Great Depression, what will happen if the GDP contracts by more than 4-percent?
Of course, Congress can pass a law that changes how the U.S. Mint determines the legal tender status of coinage they manufacture. But the likelihood of that happening is about the same as the U.S. Mint striking a $1 trillion coin.