The trillion dollar coin idea is back to prevent Armageddon financially

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By Chris Isidore, CNN Business

In the debt ceiling crisis season, it is also time for the craziest solution to the problem: get President Joe Biden to spend a $ 1 trillion coin.

The idea, which has been around for about a decade, is that the president can issue a $ 1 trillion “commemorative coin”, deposit it in the Federal Reserve, and allow the government to keep paying its bills.

A US government default would deal a severe blow to the economy, resulting in widespread job losses, higher interest rates and years of economic pain. Treasury Secretary Janet Yellen has forecast “widespread economic disaster” if the debt ceiling is not raised and millions of Americans are suddenly strapped for cash.

America threatens this scenario if a stalled Congress fails to raise the debt ceiling in a timely manner. The $ 1 trillion coin solution could effectively bypass Congress.

The coin solution

The President has clear authority to issue such commemorative coins, usually valued at $ 10 or $ 5 and sold by the US Mint to coin collectors. Those coins issued this year include one in honor of the National Law Enforcement Memorial and another in honor of Christa McAuliffe, the teacher who was killed in the 1986 space shuttle Challenger explosion.

Some proponents of the plan argue that the value of these coins is unlimited, giving a president clear authority to issue a $ 1 trillion coin or even a $ 100 trillion coin. Opponents argue, however, that this would be so grossly exceeded that an impeachment would be initiated.

The Twitterverse has fun with the idea: supporters range from Finance Podcast Hosts to recently retired baseball player. But the White House immediately rejected the idea, saying it was up to Congress to do its job and raise the debt ceiling as it has in the past.

What the White House Says

“There is only one viable option to deal with the debt ceiling: Congress must raise or suspend it, as it did about 80 times, including three times during the last administration,” White House spokesman Mike Gwin told CNN and repeated the statement he had previously given Politico on the subject. He said the idea of ​​issuing the coin was “not being considered”.

However, former President Barack Obama’s administration also rejected the idea of ​​spending the coin to bypass the debt ceiling. But in an interview Obama gave to Pod Save America in his final days, Obama admitted that the trillion dollar coin idea was something he had discussed with then Treasury Secretary Jack Lew.

“We had these conversations with Jack Lew and others about what options were actually available because it had never happened before,” he said. “There were all sorts of crazy ideas about how to possibly have this massive coin…. This theory [was] that I had the authority to just issue this massive trillion dollar coin, a trillion dollar commemorative coin, and then we could pay off US Treasuries on that basis. “

What experts say

Few serious economists actually advocate the coin solution. The most notable was a columnist for the New York Times Paul Krugman, who has a Nobel Prize in Economics, who said last year the use of the coin was “just an accounting gimmick” that would only “allow the Treasury Department to bypass extortion from the GOP” on the debt ceiling.

But as bad as a default would be, most experts oppose the use of the trillion dollar coin. They say that such a bold default avoidance process would shatter confidence in the dollar and the Treasury Department as much or more than an actual default.

“The trillion-dollar coin is a grossly flawed attempt to bypass the debt ceiling that will make a bad situation worse,” said Mark Zandi, chief economist at Moody’s Analytics, who warned that defaulting would be a “financial Armageddon.”

“Global investors will know that this is not a sustainable way of paying the government’s bills, and given the constitutional crisis that would trigger it, it will increase the likelihood that they will not be paid on time at some point in the future. The trillion dollar coin will not prevent a financial crisis and an economic crisis downturn. The only winner in all of this would be the cryptocurrency. “

Using the coin to pay off American debt would shatter confidence in the dollar going forward and only alert investors worldwide to problems with the country’s government, said Philip Wallach, a senior fellow at the American Enterprise Institute, a conservative think tank.

“It’s so glitzy and tricky, it’s the worst thing you can do,” he said. “It’s really designed to stimulate the world’s imaginations. Ultimately, the stability of a fiat currency relies on nothing more than people’s belief that money is worth what they thought was worth. Doing something like the trillion dollar coin is a great way to get people to think that the dollar isn’t such a great currency. “

At the moment, the Treasury Department is taking “extraordinary measures” to keep paying his bills, but Yellen has announced that he will run out of options sometime in mid-October. Wallach said other steps could likely be taken if the debt ceiling is not raised by then, aside from the conspicuous trillion dollar coin.

“I think it would be irresponsible if the Treasury Department didn’t have a variety of options for generating money,” he said. “They would produce innovations that are much more mysterious and boring. I have faith in her. “

The CNN Wire
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