Common Cents for January 11, 2013

January 11, 2013, by John Norris

Over the past week, the concept of the US Treasury selling a $1 trillion platinum coin to the Federal Reserve has gotten a lot of media attention. If you haven’t seen the articles, yes, you read that first sentence correctly. While I don’t think we will ever see said coin, I suppose our financial situation has come to that: $1 trillion coins. Let me type that out to put it into perspective: $1,000,000,000,000.

As ridiculous as that may seem, the worst part is it is completely legal, and, as such, some people are taking this as a legitimate, if far fetched, alternative to get around the debt ceiling. Have the Treasury sell one of these coins to the Federal Reserve; the Federal Reserve deposits $1 trillion into the Treasury’s account, and voila! No need to issue more debt.

For its part, the Fed gets a coin to put on its balance sheet, presumably at its cost, and all is right with the world. It is legal; it is understandable, and it is a way to get much needed cash to the Treasury without borrowing any more money. Who can’t be for that? Right? It is all good, with the exception of one thing: it is a bunch of [baloney].

Just because something is legal doesn’t make it right, and this is a perfect example. Why? What would the government do if we arbitrarily started pricing the assets on our balance sheet, particularly to such a degree. Hey, that $1,000,000 loan is really worth $612,745,098,039,216, and those municipal bonds? Never mind the pricing services; we think that one is worth $61,274,509,804, not $100. Those guys at the custodian don’t know what they are talking about…Read on…

The opinions expressed within this report are those of John Norris as of the initial publication of this blog. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders, and employees.