A gadget? Trillion dollar coin launched as debt crisis last resort

Some politicians believe they have found a quick fix for the deadlock on the debt ceilingexcept the bullet is platinum: strike a $ 1 trillion coin, all chips token, and use it to flood the treasury with silver and drive the Republicans mad.

Even its serious supporters – who aren’t that many – call it a gimmick. They say it’s a weird way out of a weird accounting problem that will have serious consequences for average people’s portfolios and the economy if not addressed in the next few days.

But despite all the jokes about who should be on the face of the coin – Chuck E. Cheese? Donald Trump, to tempt or taunt the GOP? – there is also erudition behind it. As unlikely as it is, it is conceivable that the government could turn $ 1 trillion into a realm coin without lawmakers having a say.

How is that possible when the secretary of the treasury can’t just print money to pay off public debts? That’s because an original law from over 20 years ago appears to allow the administration to mint coins of any denomination without congressional approval as long as they are platinum.

The intention was to help with the production of commemorative coins for collectors, not to create a nuclear option in the event of a fiscal crisis. Whoops.

Specifically, the law states that the Secretary of the Treasury “may mint and issue platinum bullion coins and evidence platinum coins in accordance with specifications, models, varieties, quantities, denominations and inscriptions as the secretary, at his discretion. , may prescribe from time to time. time.”

This is when, in the opinion of coin advocates. But Treasury Secretary Janet Yellen, the White House and some Democrats dismissed the idea on Tuesday, just as former leaders did when the going got tough and sweeping quick fixes emerged.

“The only thing more wacky would be a politically inflicted defect,” Senator Mark Warner, a Democrat from Virginia, said of the coin.

Yellen said: “What is needed is for Congress to show that the world can count on America to pay its debt.” A platinum coin, she told CNBC, “is really a gimmick.”

Of course it does, said Rohan Gray, a law professor at Willamette University and an expert in tax policy.

“The fact that (the coin) represents an accounting gadget is a source of its strength, rather than a weakness,” Gray wrote in a 2020-21 study in the Kentucky Law Journal. “The idea of ​​’tackling an accounting problem with an accounting solution’ makes perfect sense… the debt ceiling itself can be seen as a big, ill-conceived accounting gadget.”

The United States will hit the cap on Oct. 18, unless Congress acts in time to suspend it. The two parties are at a deadlock in the Senate – Republicans do not want to join Democrats in what was a routine exercise; Democrats are refraining from using only their own votes to solve the problem.

This is what makes a shiny coin with 1’s and 12’s zeros tempting to some, if this untested and daring path actually worked.

But there are many questions for many Democrats as well as Republicans: Would they have wanted President Donald Trump to order mega-pieces like diet cokes on his desk? Do they want the next president to have this power? Or even this one?

Other extraordinary possibilities have also been raised, such as the invocation of the 14th Amendment guarantee that “the validity of US public debt, authorized by law … the debt limit.”

The White House has considered all of these options “and none of these options were viable,” said press secretary Jen Psaki. “So we know the only way forward here is through congressional action.”

The debt ceiling was introduced during the First World War to make it easier for the United States to issue war bonds without needing congressional approval each time. Lawmakers just had to stay below the approved total.

Raising or suspending the cap has been a mostly uncontroversial task until recent times, as debt comes mainly from expenditures already approved by Congress or covering payments mandated by law. From now on, everything is subject to a fight until the last minute.

The Treasury cannot bring new currency into circulation – only the Fed can. In theory, the coin would be minted and deposited with the Fed and its value would end up in the general treasury account and be used to pay numerous bills.

In practice, no one knows exactly how this would work and what problems, like inflation, would result.

Democrats appear unwilling to reverse a messy process that for generations has nonetheless become the gold standard of global credit.

The idea of ​​a trillion dollar coin gained attention in 2013 when President Barack Obama struggled to rally Republicans. Donald Marron, a tax policy expert who had headed the Congressional Budget Office during part of the Bush administration, thought it wasn’t a good idea – but not a terrible one, either.

“Analysts have considered a range of other options to avoid default, including prioritizing payments, claiming the debt limit is unconstitutional and temporarily selling gold at Fort Knox,” Marron said at the time. . “All of them raise serious practical, legal and image issues. In this ugly group, the platinum coin looks relatively bright.”

Still, he said, it sounds like an Austin Powers sequel or an episode of “The Simpsons”: “It lacks dignity.”

Robert P. Matthews