Can a Trillion Dollar Coin End the US Debt Ceiling Crisis? | Federal Reserve

Picture this: the debt ceiling debate is at the eleventh hour and the US is about to default.

Members of Congress march around the US Capitol, giving press conferences and getting into arguments. As Republicans and Democrats attack each other, an unexpected savior emerges. A platinum coin is minted as a machine stamps it “a trillion dollars,” which is then given to the US central bank.

With this trillion-dollar currency, the US federal government has the money to keep paying for services like Social Security and Medicare, and avoid catastrophic defaults.

At least, that’s what some people think could be the solution to the current debt ceiling crisis. If the idea seems absurd, coin advocates argue that defaulting on the debt ceiling—which would cause huge economic damage to the United States—is even more absurd.

In early January, Treasury Secretary Janet Yellen told Congress that the country Its debt ceiling reached $31.4 trillion The Treasury will need to take “extraordinary measures” to ensure it does not default.

the debt ceiling It is a cap on the amount of money the federal government can borrow to pay for spending already appropriated by Congress. In other words, Congress has already directed Biden to spend the money, but has not allowed him access to all the money he needs to carry out the spending.

Democrats need Republican approval to raise the debt ceiling, but so do Republicans Refusal To surrender unless the Democrats agree to cut spending.

If it sounds like deja vu, it is: Fights over the debt ceiling have become more common over the past decade. The worst was in 2011, when Republicans used the debt ceiling to negotiate a $1 trillion spending cut from former President Barack Obama. During the entire standoff, Standard & Poor’s downgraded the country’s credit rating, making it more expensive for the United States to borrow money.

This time, the White House said it would Don’t negotiate above the debt ceiling. The Biden administration says a default will occur if Republicans refuse to raise the debt ceiling by June at the earliest. Standoff can get ugly, with catastrophic consequences the longer it drags on, but scientists say the administration has some options for avoiding the worst-case scenario — including the trillion-dollar coin.

Defenders of the strategy say the currency’s legitimacy lies in a law passed in the 1990s allowing the US Mint to mint platinum coins of any denomination.

To avoid default, the mint would strike the $1 trillion coin, and give it to the mint Federal Reserve And Cha-ching, the government will have more money to pay off its debts. When the debt ceiling is raised, the coin will return to the mint to be minted.

If the idea of ​​a trillion-dollar coin sounds like something born out of the Internet, it sort of is: it was a first Float in the comments section A blog in 2010 by a lawyer from Georgia named Carlos Mucha.

The blog was that of Warren Musler, the preeminent advocate of modern critical theory, better known as MMT, which was Promotion by progressive Democrats like Alexandria Ocasio-Cortez in recent years. Quite simply, the theory asserts that a government that makes its own currency cannot run out of money and therefore need not act as if it has budget constraints, such as households.

The trillion dollar coin embodies this idea. It would be a very clear demonstration of how the United States government is making its own money, by actually minting it.

“A coin is something you can talk about with your kids around the dinner table,” said Rohan Gray, a professor of law at Willamette University and a proponent of MMT technology and the minting of the trillion-dollar coin. “[It] It is a huge symbol of public monetary power. It is a very concise and focused code.

“Every time we talk about government budgeting—taxes, borrowing, taxes, borrowing—we don’t even talk about money creation as the primary force around which the entire framework is built.”

While the mints – Including Former U.S. Mint Director Philip Dale, who helped create the Platinum Coin Act – testifies to its legality and the process it goes through. Critics are asking whether the Fed will accept the coin and whether it is as legally sound as its proponents say.

Investors might also see the minting of such a coin as a good reason to doubt the US’s solvency, with the country having to resort to such an outlandish measure, opponents say.

Treasury Secretary Yellen herself has rejected the idea several times. In October 2021, she said: “I don’t think we should look at it seriously. It’s really a gimmick.” Back in January, she dismissed the idea, telling L.A Wall Street Journal The Federal Reserve may not even accept such currency.

Besides rejecting the idea of ​​a coin, the administration has been mum about any alternatives it sees to going over the debt ceiling, though they said they refused to negotiate with Republicans.

Some scholars discuss another alternative if it comes to ignoring the debt ceiling, which would cause the treasury to sell bonds to pay off the debt.

“My point is you eventually get to the point where there’s nothing you can do legally,” said Michael Dorff, a professor of law at Cornell University. “When none of your options are lawful, you must take the least lawful one.”

Dorff, along with frequent collaborator Neil Buchanan, University of Florida Law Professor argue That the $1 trillion coin is probably illegal since the Platinum Coin Act is for commemorative coins.

“Nobody thought when they passed the law that it would be used for this purpose,” he said. “It is just a poor choice to issue debt in the normal course as if there were no debt ceiling.”

While ignoring the debt ceiling could mean the executive getting around a law passed by Congress, Dorff and Buchanan consider it better than any actions more like exercising legislative power, such as raising taxes or deciding where to cut spending.

Some scholars confirm that A item The Fourteenth Amendment states that the state’s debt is “not to be questioned,” essentially making the debt ceiling unconstitutional. The so-called “public debt clause” could offer Biden constitutional protection if he ignores the cap, if the question is brought to court.

Gray and other currency advocates concede that ignoring the debt ceiling is an option, but see coinage as something within existing law that makes the government’s ability to create money transparent.

‘I’m not going to let that happen,’ Biden says on national debt default – VIDEO

“Something as big and turbulent as a coin is, that’s the kind of scale where we need to get people out of their way of thinking,” Gray said.

Amid debate over how the administration should respond to the impending debt-ceiling crisis—mint the coin, ignore the debt-ceiling, etc.—scholars agree that Democrats should have gotten rid of it or raised it even higher when they both had majorities in Congress. While the idea was mooted in December, it didn’t get the traction it needed to gain traction.

“What we are dealing with now is the same problem we had [in 2011]Gray said. The Democrats got us to the point where they had a chance to fix the problem, however [they] He did not make getting rid of the debt ceiling during the legislative session a priority.”

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