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The hottest idea to save the economy from another debt ceiling fight (and a potential default) is the Trillion Dollar Platinum Coin.

In order to understand how it works, we first need a very quick lesson in how the government spends money.

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This is a super-crude version of it, but here’s the gist:

The Treasury Department has a bank account at The Federal Reserve, specifically the New York branch of the Federal Reserve. When the Treasury writes a check to a company (say a defense contracted owed $100 million) that check is “cashed” at the Fed. When the Treasury needs money (which is all the time) it sells bonds in an auction. The proceeds of those bonds go into the account.

Okay, now there’s this thing called the debt ceiling, which sets a maximum cap on the amount of debt that the US can carry at one time. Every time we come close to hitting it, the US has to ask Congress to raise the limit. In recent years, since the rise of the Tea Party, what used to be a mildly frustrating event has grown into a systemic economic threat.

So where does the Trillion Dollar Platinum Coin fit in?

In the section of the law which specifically relates to the Treasury’s ability to create money (coins and bills) section K says this:

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

In other words, when it comes to platinum coins, the Secretary (who is currently Tim Geithner) has discretion on the designs, specifications, quantities, and denominations of platinum coinage.

So let’s say, Tim Geithner decided to stamp out a $1 trillion coin. What does that accomplish?

The idea is that after it was created, Geithner could walk it over to the Federal Reserve, and deposit it in the Treasury’s bank account. Then the Treasury, rather than having to issue new debt (because remember, Congress hasn’t raised the limit) can make sure its checks clear against this money.