Oct 3, 2021 - Economy

The coin that could avert a federal debt default

An illustration of a $1 trillion coin.

Illustration: Aïda Amer/Axios

An increasingly vocal chorus of commentators is saying that the U.S. Treasury should #MintTheCoin — issue a small platinum token, give it a face value of $1 trillion, and deposit it at the Federal Reserve.

Why it matters: The gambit, if successful, would prevent the potentially catastrophic debt default that, thanks to Congressional intransigence on both sides of the aisle, is looming fast.

The big picture: When a U.S. Treasury secretary is tasked with averting a fast-looming potential cataclysm, she has to consider all possible options — even those that seem bizarre at first light.

  • Treasury has reportedly considered and rejected the platinum-coin idea — but then again, Treasury Secretary Robert Rubin said in 1995 that using the Exchange Stabilization Fund to bail out Mexico would be impossible. (He ended up doing exactly that just a few weeks later.)

How it works: The Fed, once given the coin, would credit Treasury's account with $1 trillion that would not count towards the national debt.

  • The scheme looks legally feasible, although it would surely be challenged in the courts. Politically, however, it looks like a non-starter. The Democratic Party is capable of raising the debt ceiling through the reconciliation process, but refuses to do so for political reasons: They want Republicans to grapple with the fiscal reality of the bills they have already passed.
  • Democrats control the White House and Treasury, neither of which seem to have any more appetite than their Congressional counterparts to let the country off the hook without Republicans being somehow involved.

Driving the news: Bloomberg executive editor Joe Weisenthal, who has an invaluable FAQ on the issue, says that he's "been coinpilled since at least 2013". More recent converts include Nobel laureate Paul Krugman; economist Dean Baker; former Mint director Philip Diehl; members of Congress including Rashida Tlaib and Jerry Nadler; and others including Hayes Brown and Zachary Carter.

  • They all agree that the debt ceiling serves no useful fiscal purpose: It's a dumb political cudgel that risks triggering an unconstitutional and catastrophic default.
  • The trillion-dollar coin would effectively take that cudgel out of the hands of the politicians, rendering them slightly less capable of causing a calamity through inaction alone.

The other side: The trillion dollar coin would allow the government to spend money without borrowing it or raising it via taxation. That could be a dangerous precedent to set.

  • Even if it's legally sound, no one knows whether it's physically possible to mint a platinum coin between now and Oct. 18, when the U.S. risks going into default. Maybe we'll find out at some point in the next few weeks.
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