What’s happening
As Democrats negotiate about the scope of a massive infrastructure package that President Biden sees as the key to the future of the U.S. economy, they also face a more immediate challenge: raising the debt ceiling by Oct. 18 to avoid a major economic collapse.
The debt ceiling is a legal limit on the amount of money the United States can borrow. Since the government consistently spends more money than it takes in, Congress has to periodically raise the debt ceiling to avoid running into the cap. For most of the past century, raising the debt ceiling was an uncontroversial procedural step for lawmakers in both parties — largely because they understood that breaching the debt ceiling would bring “widespread economic catastrophe.”
Over the past decade, though, debt-ceiling votes have become more fraught, and the current impasse is the third time since 2011 that the U.S. has flirted with default. Faced with the once unthinkable possibility that partisan gamesmanship could lead to a financial disaster, some economists and legal scholars have proposed dramatic steps that the executive branch could take to stave off a collapse should Congress fail to act in time.
The most eye-catching of those ideas would involve capitalizing on a loophole in U.S. law that allows the Treasury Department to mint platinum coins at any denomination it likes. The proposal calls for the Treasury to create one or more platinum coins valued at $1 trillion, then deposit those coins with the Federal Reserve to give the government more spending power without lifting the debt limit.
Why there’s debate
The concept of a trillion-dollar coin first gained traction on blogs in the early 2010s, but started to garner mainstream attention during the debt ceiling crisis of 2011. At least two Democratic members of Congress have proposed minting a coin to resolve the current stalemate, though the Biden administration says that is not under consideration.
Proponents say that $1 trillion coins, as wild as the idea sounds, are actually an elegant solution to what’s become an increasingly dangerous game of chicken played by Congress around debt-ceiling votes. They argue that coins present an opportunity to stave off default with a single, simple action that’s free from partisan gamesmanship. Some economists make the case that the apparent absurdity of the coins is in fact a positive, since it could draw attention to the silliness of debt-ceiling standoffs and possibly convince Congress to abolish the debt limit altogether.
Others say the practical reality of trillion-dollar coins could be disastrous. Some legal experts argue that it would be unconstitutional for the executive branch to create a workaround to budgetary powers that the Founders bestowed exclusively on Congress. Many economists also fear that taking such a drastic step would send a message to investors that the U.S. economy was on shaky ground, which could lead to the same sort of financial collapse that breaching the debt ceiling would bring.
What’s next
Democratic leaders in Congress have attempted to pressure Republicans into raising the debt ceiling on a bipartisan basis, a tactic that appears to have failed so far. Democrats do have the ability to increase the debt limit on their own, but would have to use a complex and time-consuming process called reconciliation to circumvent a Republican filibuster in the Senate.
Perspectives
Supporters
Trillion-dollar coins are a silly solution, but they would work
“Go ahead, Democrats, and do whatever it takes to get through this. Gimmickry in the defense of sanity — and, in an important sense, democracy — is no vice.” — Paul Krugman, New York Times
The coins could help end dangerous debt ceiling fights for good
“The debt ceiling was never designed to be a weapon of destruction. Legislators should not have the power to threaten global financial calamity in pursuit of increasingly petty partisan aims. With a platinum coin or two on account at the Fed, the debt ceiling could be rendered meaningless indefinitely, eliminating a wholly artificial and unnecessary source of crisis. Silly problems demand silly solutions.” — Zachary D. Carter, Washington Post
None of the drawbacks of the coins would be worse than default
“If the choice is the Republicans’ sticking to their guns and watching Biden preside over the first default on debt in American history or feeling silly about minting a coin? Just go ahead and mint the thing.” — Hayes Brown, MSNBC
The coins would draw attention to the absurdity of the debt ceiling itself
“It is a work around. It sort of makes it obvious that the debt limit itself is a pretty stupid idea.” — L. Randall Wray, economist, to AFP
The fate of the U.S. economy is more important than arcane debates about the president’s Constitutional authority
“If the choice is between default and a presidential power grab, a power grab is the only defensible course of action. A responsible leader does not plunge his people into a wholly preventable financial crisis. If backed against a wall, Biden mustn’t flinch. He must kill the debt ceiling once and for all.” — Dylan Matthews, Vox
Skeptics
It’s risky to set the precedent that trillion-dollar coins can solve all of America’s problems
“Would relaxing the Treasury’s ‘self imposed’ rule against minting trillion-dollar coins leave us as safe, or safer, from abuse of the money power than we are now? To answer that question, one has to consider possible future consequences of the change. That means asking what might happen if the Treasury could mint not just one or two trillion-dollar coins, but as many such coins as it liked.” — George Selgin, Cato Institute
Minting the coins would be unconstitutional
“Article I gives Congress the purse strings, and the credit card. Were the president to take these powers, he would make himself a king.” — Christopher M. Russo, Barrons
This would be a political disaster for Democrats
“I think minting the $1 Trillion coin would actually be unpopular because it’s literally just printing money and people get what that is.” — Slate political writer Jordan Weissmann
The coins could spark their own financial meltdown
“Global investors will know that this isn’t a sustainable way to pay the government’s bills, and given the constitutional crisis it would ignite, it will increase the odds they won’t get paid in a timely way at some point in the future. The trillion dollar coin will not forestall a financial crisis and economic crisis downturn.” — Mark Zandi, chief economist for Moody’s Analytics, to CNN
A likely legal challenge would sow economic uncertainty
“If Biden were to take any of these actions, it is all but certain that Republicans would at least try to engineer a legal challenge. And so long as there is any uncertainty surrounding the legality of America’s debt payments, some of the negative impacts of breaching the debt ceiling might still be felt. Investors would likely want some premium for accepting the risk that conservative judges would upend America’s finances at any moment.” — Eric Levitz, New York
The coins would do permanent damage to the the value of U.S. currency in the world
“At the end of the day, a fiat currency’s stability doesn’t rest on anything other than people’s belief that money is worth what they’ve believed it to be worth. Doing something like the trillion-dollar coin is a great way to get people to think that [the] dollar is not such a great currency.” — Philip Wallach, American Enterprise Institute senior fellow, to CNN
