After bringing the United States to within two weeks of a potential debt default, Congress late Wednesday was on the verge of a deal that would avert the crisis through November by passing a small increase of the limit on how much the federal government is allowed to borrow.
The measure would do nothing to bridge the serious divide between Democrats and Republicans over how to avoid a default on the country’s debts over the longer term. It would also make it likely that by mid-November lawmakers will be dug in on the same battle lines.
That means that the Biden administration and its Democratic congressional allies will be back in crisis mode, looking for ways to avoid a catastrophic default on the country’s financial obligations.
When that happens, one unconventional option that has gained support in recent weeks is likely to be back in the mix: minting a $1 trillion platinum coin to provide the Treasury with the funds it needs to pay the country’s bills in the coming months.
The plan, according to its proponents, is simple. Treasury Secretary Janet Yellen would order the U.S. Mint to create a single coin in the denomination of $1 trillion. The platinum coin would then be transported to the Federal Reserve, the nation’s central bank, and placed on deposit in the Treasury Department’s account there. Then, when necessary, the Treasury would draw funds from the account to pay the nation’s bills.
The controversial move relies on the statutory power of the Treasury Secretary to authorize the minting of 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.”
While it may sound fantastical, the fact that the trillion-dollar coin is part of the conversation in Washington reflects just how fraught the fight over the debt limit, a cap on how much the Treasury can borrow, has become.
There is no debate over whether or not the debt limit should be raised. Leaders of both parties insist that the government must be allowed to borrow the money it needs to pay its bills. The fight is over how it ought to be done.
Republicans are demanding that Democrats use a complicated procedure known as “budget reconciliation” to vote on the debt limit. Democratic leaders have rejected that proposal, saying that it is too time consuming and could bring the country dangerously close to the point of default.
Concern that the country might inadvertently lurch into default because of an accident of timing has made the trillion-dollar coin idea more appealing to some because, by all accounts, it could be executed very quickly.
This week, Philip Diehl, the former director of the U.S. Mint, explained to the news website Axios that it would be possible to design and mint a trillion-dollar coin in a matter of hours. The Mint has an ample supply of platinum “blank” coins, and could easily reconfigure the mold used to produce an existing platinum commemorative $1 coin.
The legal statute that gives the Treasury Secretary the authority to mint a trillion-dollar coin was tucked into a 750-page appropriations bill in 1996, and was never meant to be used to avert a fiscal catastrophe.
The reason why the law specified that the Treasury Secretary’s authority to issue new types of coin was limited to those made of platinum, is because rules already existed limiting the ability to strike coins from metals historically used for money: gold, silver, and copper.
The platinum coins issued by the Treasury are typically commemorative in nature, and are purchased by collectors. However, because the law was not written in a way that specifically bars the Treasury Secretary from minting platinum currency, advocates of the idea say it remains an available option in an emergency.
Idea not new
This is not the first time there have been proposals to use a trillion-dollar coin to get around the debt limit. During the 2011 debt ceiling crisis the idea surfaced among some academics and political commentators, though it didn’t receive broad acceptance.
The idea picked up more momentum in 2012, when it was endorsed by Nobel Prize-winning economist and New York Times columnist Paul Krugman.
Lawmakers took the idea seriously enough that there was a brief effort to pass legislation banning the creation of such a coin in 2013, although it failed.
There has been much speculation about what a trillion-dollar coin might look like, but in the end, that wouldn’t matter much, because virtually nobody would ever see it. The coin would go from the Mint to the Fed — likely to the vaults at the Federal Reserve Bank of New York — and would remain there in perpetuity.
The biggest impediment to the plan, at the moment, appears to be Treasury Secretary Janet Yellen herself. Last week, she dismissed the idea during testimony before the House Financial Services Committee.
On Tuesday, she made her opposition to the plan more emphatic in an interview with CNBC.
“I’m opposed to it, and I don’t believe that we should consider it seriously,” she said. “It’s really a gimmick.”
She continued, “What’s necessary is for Congress to show that the world can count on America paying its debts. The platinum coin is equivalent to asking the Federal Reserve to print money to cover deficits that Congress is unwilling to cover by issuing debt. It compromises the independence of the Fed, conflating monetary and fiscal policy. And instead of showing that Congress and the administration can be trusted to pay the country’s bills, it really does the opposite.”
Supporters of the plan will note one thing that Yellen did not say: That minting the coin would be illegal or illegitimate.
Some argue that if Congress fails to act, the Treasury Secretary might, in fact, be obligated to use her authority to mint new currency to pay the country’s bills.
While the debt ceiling places a real, legal limit on the amount of money the government can borrow, spending bills passed by Congress also legally obligate the administration to spend funds as Congress has specified. Additionally, the 14th Amendment to the Constitution specifies that “The validity of the public debt of the United States … shall not be questioned,” which some legal scholars have interpreted as meaning that allowing a debt default would be unconstitutional.
Rohan Grey, a professor of law at Willamette University, said that Yellen’s belief that the trillion-dollar coin is a “gimmick” would be no defense if minting the coin were the only thing standing between the United States and default.
“You can’t say, I find this silly or uncomfortable, therefore, I’m going to intentionally violate the Constitution,” he told VOA. “Their obligation is to honor the debts under the 14th Amendment and to honor Congress’s spending directives.”
Lesser of two evils
While minting a trillion-dollar coin might avoid a technical default on the nation’s debts, some experts worry about the effect such a radical proposal would have on public perceptions.
The idea is so “wacky,” said Kenneth Kuttner, Williams College professor of economics, that it might undermine the faith that ordinary people, and even sophisticated financial markets participants, have in the U.S. government.
“They’re managing things so poorly that they’re having to resort to these gimmicks to obviate [raising] the debt ceiling?” he told VOA. “That may look bad for regular people and for the financial markets.”