Friday, January 4, 2013

Dylan Matthews — Michael Castle: Unsuspecting godfather of the $1 trillion coin solution

But wait — how did the Treasury secretary ever get this authority? Who would have thought to give it to him, and why?
The story starts in 1995, when Rep. Michael Castle, then the Republican at-large representative for Delaware, took over as head of the House Financial Services subcommittee on domestic and international monetary policy. Issues of coinage were part of that subcommittee’s jurisdiction, and so Castle — who tells me that he personally has never collected coins or previously hadn’t had much interest in coin issues — started working with coin collectors and others to draft legislation on the topic. 
Castle’s biggest accomplishment in the role was the 50-state quarter program, which involved issuing 50 differently designed quarters in the order the states were admitted to the Union (it isn’t a coincidence that Castle’s home state of Delaware was the first admitted). But he also drafted a bill, the Commemorative Coin Authorization and Reform Act of 1995, that included this provision:
Notwithstanding any other provision of law, the Secretary of the Treasury may mint and issue platinum coins in such quantity and of such variety as the Secretary determines to be appropriate.
The logic, Castle tells me, was to enable the Treasury to put out collectable platinum coins of a variety of sizes. At the time, collectors had complained that the smallest platinum coins available were too expensive, a problem the bill was supposed to enable the Treasury to correct. “The investment community wanted flexibility to make fractional coins,” Castle explains. “People couldn’t afford the $600 investment, so they wanted the flexibility to put in smaller coinage so that people could collect them.” 
Presumably, the platinum coins used to get around the debt ceiling would be worth way more than $100. (AP)
Castle’s interest was in producing income from seignorage (that is, the profit collected by the government by minting coins or printing paper money that is worth more than it costs to produce) as a means of reducing the deficit, albeit by a small amount, without raising taxes or cutting spending. “We saw it as an opportunity to make money for the Mint and the Treasury,” he remembers.
The Washington Post | Wonkblog
Michael Castle: Unsuspecting godfather of the $1 trillion coin solution
Dylan Matthews

BTW, Dylan Matthews is the one that researched the MMT post at Wonkblog some time back.


1 comment:

Clonal said...

From A trillion-dollar-coin idea takes off, and a former head of the U.S. Mint doesn't see why it shouldn't

Quote:
But for what it's worth, the guy who was in charge of the U.S. Mint when the original law providing for the minting of such a coin was passed told me he thinks Nadler's proposal is perfectly legal.

"My understanding of how this all works suggests that this is a viable alternative," said Philip Diehl, a former chief of staff to the late Texas congressman Lloyd Bentsen, who was head of the U.S. Mint from 1994-2000.

Diehl tried to make the Mint function more like a business, and saw an opportunity in the worldwide market for platinum bullion coins. (The gold bullion coins fashioned by the Mint are not produced at the preferred purity for the worldwide gold trade, Diehl said, making them a tough sell on the international market.)

Diehl planned to conduct extensive market research, focusing in particular on the hot market for platinum in Japan, and wanted legislation that would allow him to react quickly to those results. The Treasury Department, wary of its bureaus making their own friends on the Hill, was "decidedly unenthusiastic" about the legislation, Diehl said, but he worked closely with Republican Rep. Mike Castle, who was chairman of the House Financial Services Subcommittee at the time, and eventually got the bill through the Republican-controlled House with what Diehl called a "blank check."

"One of the ironies in this story is that a G.O.P. Congress passed the legislation over the objections of a Democratic Treasury, and now, today, Treasury may well be in a position to use the law as leverage to neutralize the G.O.P.'s threat to hold the debt limit hostage," he said.

The legislation served its purpose; the Mint rushed out a platinum bullion eagle coin—in denominations up to $100—and overtook the market.

"We brought that coin to market faster than any coin the U.S. Mint had ever brought to market, and within about six months of launching it, we owned about 80 percent of the worldwide market for platinum bullion coins," he said. "The Canadians had dominated the Japanese and U.S. market up to that time, and we basically took them out of his both markets."

"Of course, no one ever imagined that a scenario like this would develop," said Diehl, who is now C.E.O. of a gold seller in Austin, Texas.

Diehl said he thought it could be used "as a backstop," and that it appeared to be on more firm legal ground than the 14th Amendment.