Is a $1 Trillion Coin a Good Way to Avoid Another Debt-Ceiling Impasse?

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The summer of 2011 is not a time any of us would like to revisit, economically speaking. It was during this time that the European Debt Crisis had reached it’s most volatile stage, with many believing that a Greek exit from the union was a foregone conclusion, sparking fears of a messy dissolution of the globe’s largest economy. On top of that, the world began to seriously doubt the American government’s commitment to paying its debts, as Republicans in Congress refused to raise the statutory limit on how much debt the Treasury Department can issue unless President Obama agreed to significant reductions in federal spending.

Unfortunately, the result of that battle was a deal to raise the debt ceiling to allow for another year and a half of full government operations, with significant spending cuts to go into effect this month. This in part created the so-called fiscal cliff, which was postponed by two months in a down-to-the-wire agreement reached by the President and Congress this week. But the Federal government has already reached it’s borrowing limit, and is resorting to “extraordinary measures” in order to avoid issuing new debt to finance government operations. Welcome to the summer of 2011 all over again.

(MORE: The Weird Resonance of #Mintthecoin)

The basic problem is this: Constitutionally, the Congress is in charge of both deciding how much money the government should spend, and deciding how much money the government can borrow. The current House of Representatives, dominated by conservative Republicans, doesn’t want to spend anywhere near as much money as current law dictates the government must. They don’t have enough power to change the law as it stands. But they can use their ability to block further debt issuance as a bargaining chip to force those spending cuts.

Critics of this bargaining strategy view it as legislative terrorism. They say that House Republicans can’t accept their lack of control over the government, so they are willing to risk the United States government defaulting on its debt and all the nasty consequences that would result from that in order to force their vision of the size of government into existence.

So for those who believe the debt ceiling is a harmful anachronism that allows minority factions in the government to hold the majority hostage, there are a few clever strategies for obviating the debt ceiling altogether. One, first highlighted in the Summer of 2011 by Yale Constitutional Law Professor Jack M. Balkin, is for the Treasury to use a loophole in the law meant to enable it to issue commemorative coins in order to issue two $1 trillion platinum coins, and then deposit them with the Federal Reserve. The Fed could then deposit funds with the Treasury in return.

This admittedly ridiculous solution to the debt ceiling issue has gotten a lot of attention in the media lately, with Josh Barro of Bloomberg View endorsing it yesterday, followed by the Huffington Post and New York Post featuring it prominently on their site and paper today. But does it have an realistic chance of being used? Probably not. As Balkin wrote last year, this option hasn’t been publicly considered by the Administration for several reasons:

“First, there may be other legal obstacles to using these options that we don’t know about. Second, because these devices could be used over and over again, they might scare investors and be politically unacceptable. Third, the president’s political strategy has been to obtain a congressional deal lowering the deficit, and these solutions would take all the pressure off Congress.”

In other words, it would be better for everyone involved if Democrats and Republicans can come to some sort of solution to this standoff that doesn’t involve absurd Constitutional workarounds to disagreements of public policy. But the past few years have proven that the current legal framework for deciding on government borrowing and spending is dangerously flawed.

MORE: Canada’s Penny Is No More – Is the U.S. Penny Next?

42 comments
robert.cogan
robert.cogan


One $ trillion coin won't work because only Congress has the constitutional power to coin money and regulate the value thereof. Courts would probably decide as much.  Republicans would block it.

But there's a twice successfully used alternative! Greenbacks! It’s high time the mainstream media stopped ignoring and started to inform Americans of other alternatives! Congress has the Constitutional power to coin ANY AMOUNT of money needed. It can even do this WITHOUT DEBT! Look up “United States Notes." If Obama had any backbone or was willing to risk his “political capital,” he’d put the Congress on the HOT SEAT TO STOP STALLING by raising the salience of this idea! We’ve had 4 years of severe DEFLATION for millions of households. Deleveraging debt is going too slow and we need CONTROLLED “reflation” targeted at unemployment and housing.

Only a vast program of federal aid to small and medium sized domestic businesses and entrepreneurs and inventors to subsidize new American hires can get unemployment and consumption out of  our painfully too slow “recovery.” Start with grants to companies that will recruit unemployed breadwinners in homes with mortgages or rent overdue. Obama’s lack of leadership, Congress’s corruption by banks, media cowardice to propose such banker – opposed solutions, and the public’s ignorance and apathy mean we will suffer much longer.

Illegitimi non carborundum!

JosephPijanowski
JosephPijanowski

This magic coin idea is valid.....but it does not address the root of our debt. HR2990 (The NEED Act) is a related concept BUT it goes the whole way to address our DEBT. It pays off the national debt over time, creates over 7 million jobs and rebuilds our failing infrastructure without causing inflation! Our entire country does not understand that our national debt is completely unnecessary and it is a product of our FLAWED debt based money system. HR 2990 (related to the Chicago Plan) corrects this and it is proven as a valid solution in a white paper by Michael Kumhof and Jaromir Benes. Incidentally these two are from the research department of the International Monetary Fund. http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf
AND here is another white paper which comes to the same conclusion http://monetary.org/wp-content/uploads/2011/11/DesignOpenMacro.pdf

RonLash
RonLash

Most comments were posted by dems and leftists.Seems that we are going to have a period of socialism in this country>Want to go back to USSR(UNION OF Soviet Socialist Republics)?Good luck.

ValenSmith
ValenSmith

Congress is responsible for approving all spending and revenue for the country - the President is required to enforce those regulations, but cannot unilaterally introduce new taxes nor spend money without authorization. He can refuse to sign bills sent to him by Congress, but that's about all his direct influence on spending. Congress, on the other hand, is in fact responsible for figuring out how to fund the government, and for making the numbers balance. If they decide not to give the Treasury the ability to cut checks, that isn't really the President's fault, since he can neither sign nor veto legislation that never reaches his desk.

Valen from http://bit.ly/N1y0Iq

Anderson
Anderson

Our money isn't backed by anything.  The 1.17 trillion dollars in circulation are worth whatever everyone thinks it's worth.  Inflation isn't an issue currently, and we're not talking about printing money like Germany in the 1920s.  A trillion dollar drop in our national debt would be very welcome, would it not?  Think of the interest payments saved!  Since our money already is backed only by faith in the US, I would think such a write-down of our debt would make us more attractive, financially.

I understand supply & demand, but our money isn't exactly like that because it has no inherent value, unlike the things we buy.  If the government added a trillion dollars to its own coffers tomorrow I wouldn't suddenly look at my dollar bill and say it's worth less.  Why should a car dealer think so?  Or a shop keeper?  Or a banker?  The worth is what we decide.  If our economy's strong the dollar is strong too because people have greater faith in the US as a safe place to invest.

juliaz
juliaz

Time, do you still have EDITORS? "It's" means "it is", while "its" means "belonging to it". I think minting a $1 trillion coin is an excellent idea. I'm tired of the GOP holding the government hostage and wasting so much taxpayer money in the process!

RobertCassis
RobertCassis

I wonder how much you could fence it for if you were a thief?

extasyjones
extasyjones

Truly inept. While we're at it, why not make a $16T coin and pay off the debt?

The best part is reading how the Republicans are the cause, or how the Democrats are the cause. 

We are going to finger point ourselves into ruin. The sooner people realize that the Republicrats and Demicans are the same tragic entity the better.

John
John

An the $1 trillion coin is going to help the economy -  how?

bibleverse1
bibleverse1

Is a $1 Trillion Coin a Good Way to Avoid Another Debt-Ceiling Impasse? Heck no, are you stupid?


btt1943
btt1943

The very notion of suggesting to mint $1 trillion coin goes a long way to show the pathetically miserable economic situation in US. Could that be not madness at its apex? Absolutely flabbergasting. (vzc1943, mtd1943)

renie_laster
renie_laster

"All of these DAMM Smart, College Educated People in Washington and they can't get anything done.  Put a Few People with Some Education and a Lot of Common Horse Sense in

 and They will Fix the GOVERNMENT and Straighten Everything Out."  This Is Just Ridiculous ~ Turtle Crossings. $600.00 Toilet Seats, Ect.:

SixSixSix
SixSixSix

The debt ceiling is an accident of legislative history threatening to become truly toxic. If the Repubs want to flatten their beloved private financial system, they need only pull the pin on this baby. Not only will they show colossal bad judgement, they will also demonstrate just how much the fundamental well being of their "private financial market" rests on government foundations. They will also show just how much that system ultimately harms the rest of us. American Capitalism and its political party will be in extreme danger.

ErikMartin
ErikMartin

The debt limit is our one chance to avoid ruin, sine no one in Washington is disciplined enough to curtail spending without it.  If Obama tried to circumvent the constitutional and statutory laws which give the monetary authority to the Fed and Congress, it should be impeachment grounds.

Phyto
Phyto

superlogi: Odd comment.  Most intellectuals are left of center, so they are not the ones to worry about
regarding "intellectual capacity" - that would be the fascist neo-cons
who can't count, don't believe in climate change and move to Kansas to
avoid evolving.

babycheeks
babycheeks

I am a conservative but the Republicans in the house are nuts. The problem is they will not admit we have to pay for the money we have already spent! Raising the debt is not to incur new spending but cover what CONGRESS already voted to spend. Obama should call their bluff, and keep putting it back on them. Some of the Republicans think they can cut spending by refusing to pay our creditors instead of actually having to have the intellect and courage to vote to choose what to cut. Take them to school Obama. Do not agree to any smoke and mirrors. Make them participate as well as the gutless Democrats. Raise the debt ceiling. Cut spending. Then see if anyone can get re-elected. It will be what the country needs, a grow up debate on the limits of our revenue raising ability, the actual pain we must endure in spending cuts to survive and selfless choices of what it will be.

TimothyPoplaski
TimothyPoplaski

I have to wonder, what would happen if instead of giving in to the Republicans, Obama just handed them the keys and said he'd approve anything they wanted, but only for six months. Give them the keys to the candy store, put it in place, and let all the special interest groups affected actually BE affected, and thus get upset about it.


The main group I have in mind is old folks. Cut their checks back, cut their doctor visits back, cut their prescriptions back, and all of a sudden maybe they'll stop believing the Republicans are "defending" Social Security from the evil Democrats.


There's nothing like a hit in the pocket book to make a person wake up and pay attention. And vote.


Yes, it'd hurt the economy (austerity being BAD right now), but as long as the bonds were paid, the US wouldn't just still look safe, we might look safer, if the world sees use choosing to pay our debts before we pay grandma.


Oh, and I do say this as someone that'd be completely screwed if the economy tanked. Sometimes, if you care about your country, you have to make sacrifices though.

superlogi
superlogi

Only if you're a leftist twit, without the intellectual capacity to count.

schm1895
schm1895

Why make just one 1 Trillion dollar coin?  If you are going to go that far, why not make 16 and take our national debt to 0$?  O wait, that would send inflation through the roof, collapse our economy, make the US look like even bigger idiots and probably start a world war.  The world vs. the USA.

schm1895
schm1895

I have a solution:  Take every single member of the Senate & House, President & VP, put a bomb around their necks that cannot be removed.  If they do not pass a balanced budget by March 1st, 2012 the bombs go off.  Suddenly all of our politicians will stop pandering the American people for money for their campaigns.  They will all come together and pass working legislation in a matter of days.

KountyKobbler
KountyKobbler

This is the simplistic path to avoid a political fight with congress and legal it is just as right as a continual talk-less filibuster with Mitch and crew in Congress. after the past 3 years of that nonsense its time to do what is needed to allow the nation to go back to full employment  to pay more taxes to get back to business.

the first thing that should be on the cut list is the golden parachute of Congress. time to end the retirement program that makes welfare look like a dime store diamond ring. move all federal retirement to the same trust fund that  all most all citizens are on   and no greater rate than common  citizen social security and medicare NO Cadillac program for the federal workers.  require they go to VA clinics or hospital care  they have not earned any bore benefit than the foot soldier at war. and NO privilege entry  get in line first come first serve.

krw1943
krw1943

Considering who is in the White House - imminently impeachable but safe for now considering the total wimps in congress- maybe a ONE TRILLION coin would not be enough. Maybe it should be a ONE QUADRILLION coin, so we could go out with a hugely resounding Big Bang!

falcon269
falcon269

If Republicans are going to be stupid, the trillion dollar coin is a great idea! It is a shame that adults are not in control in Congress.

extasyjones
extasyjones

@tom.litton - Wow. I think this post is the sum illustration of my argument.  (Minus the grammar lesson)  :) 

@ juliaz - no offense.

AdamRussell
AdamRussell

@drakkenmensch $1 trillion by itself isnt enough to trigger hyperinflation.  For there to be 100x inflation you would have to inflate the entire monetary supply by 100x.

tom.litton
tom.litton

@drakkenmensch My understanding is that it's a temporary measure.  The government will buy it back and destroy it when the debt ceiling is eventually raised. 

tom.litton
tom.litton

@extasyjones $16T coin would cause too much inflation. 

Plus, my understanding is that the government would buy back the coin eventually (when the debt ceiling is raised) and destroy it.  It is just a way to temporarily avoid the debt ceiling.

tom.litton
tom.litton

@John

It avoids a default, which would be disastrous for the economy.  So it doesn't help the economy so much as it avoids hurting it (or, by some accounts, completely destroying it).

tom.litton
tom.litton

@ErikMartin How does it avoid ruin?  

It seems to me it would make the deficit many times worse.  

Not only would all the bad things happen that people have been talking about, which by themselves increase the deficit (by significantly reducing revenue and increasing the interest on the debt).  But it doesn't automatically reverse the laws requiring the government to buy the goods and services in the previous passed budgets.  So it still has to pay it's bills eventually anyways.  


schm1895
schm1895

@KountyKobbler That is a great idea, there should be only one retirement plan for people who work for the Federal Government.  Every state should have their own for all state hired employees.

drakkenmensch
drakkenmensch

@tom.litton @drakkenmensch  When was the last fiscal "temporary measure" you ever saw to get phased out? If it gets enacted temporarily, expect it to be extended indefinitely. And to buy it back, they'll need to have money to do so. If they have no money to pay for it now, what guarantees do you have they will a year from now? Will they have magically found a trillion in the sofa cushions, or will they just yield in the temptation to mint MORE trillion dollar coins?

tom.litton
tom.litton

@drakkenmensch @tom.litton Well (as the theory goes), the debt ceiling will need to be raised eventually.  They can then borrow the money to buy back the coin.  

Yes, there is a danger of the debt ceiling never getting raised, and the government fund itself by minting more and more coins.  Even if that is true, it still does less damage than a default.

Nobody is saying this is a good idea, just that it's a better idea than defaulting.

extasyjones
extasyjones

@tom.litton @extasyjones I am reading what your saying. I get it. Make the coin - Crisis averted... for a few months with a weaker dollar and with less to pay it back.

I think your missing my point. No one is arguing it's a temporary measure. But THAT'S the point. We're not making any effort to change our course, just delay it. If we were talking about our own personal finances, it would obviously be a joke. Economists have been saying it for years. Ron Paul said it in the last election. The sad truth is, like any financial hole, correcting it will require sacrifice and hard decisions. And no one seems to have the b**ls to make that call. But a few years of sacrifice vs. total financial ruin... you tell me.

No "Magic Coin" is the solution (temporary or long-term). It's time for people to get sick of petty tricks start demanding true Bipartisan ACTION.

extasyjones
extasyjones

@tom.litton @extasyjones We will pay the Treasury with MONEY. You do know that money comes from the Treasury, right? I'm not trying to be condescending, but this seems to be a bit like when your a child and think that parents just need go to the "Money Machine" (ATM) whenever they need money. Heck, if they spend too much money, they can just write a check. 

Even when I was young I knew that more money in print makes money worth less. Money with no backing is nothing at all. Certainly that is still a fact we all understand. At tax time, we should send in our own self-made money. Later we can buy them back with more self-made money.

Fact is: In time, we WILL feel the sting from the money printed for the bailouts and we WILL feel the sting if they print this coin. If this were a business we would have long since closed our doors.

tom.litton
tom.litton

@extasyjones @tom.litton Money.  Like i said it only temporarily avoids the debt ceiling.  Minting coins every time the government needs money would cause too much inflation. 

I'm not an economist, but from what i understand from Paul Krugman's blog is that the only reason why the government can get away with it now is because the economy is so depressed.