As you may have heard, the U.S. Government is thinking of having the Mint create a 1 trillion dollars coin. Weird as this may sound, it can be accomplished if the coin is made of platinum and would — if I understand this correctly — guarantee the United States, uh, creditworthiness. As the hilarious Paul Krugman explains it in The New York Times:
Well, the trillion-dollar-coin thing — deal with the debt ceiling by exploiting a legal loophole to have the Treasury mint one or more large-denomination coins, deposit them at the Fed, and use the cash in the new account to pay bills — has really taken off. Last month I spoke with a senior Fed official who had never heard of the idea; these days its all over.
There seem to be two kinds of objections. One is that it would be undignified. Heres how to think about that: we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb hes holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac — a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, My god, we cant dress the secretary up as a clown! Even when it will make him a hero who saves the day?
With the coin in circulation — so to speak — the debt ceiling wouldnt go away: it would simply be delayed. And while not everyone thinks this is even legal, Ezra Klein explains how it would work in this article on The Washington Post:
- The accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the Treasurys general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar.
- Once the debt limit is raised, the Fed could ship the coin back to the Mint where the accounting treatment would be reversed and the coin melted. The coin would never be issued or circulated and bonds would not be needed to back the coin.
- There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books, and the coin would be melted.
- This does not raise the debt limit so it cant be characterized as circumventing congressional authority over the debt limit. Rather, it delays when the debt limit is reached. Those who claim otherwise are misinformed or pursuing an agenda.
- This preserves congressional authority over the debt limit in a way that reliance on the 14th Amendment would not. It also avoids the protracted court battles the 14th Amendment option would entail and avoids another confrontation with the Roberts Court.
The above pictured coin is from Talking Points Memo, offering suggestions of the faces that should go on the trillion dollar coin.
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