Picture this: The debt ceiling debate is in the 11th hour and the US is on the brink of default.
Members of Congress are rushing around the US capital, holding press conferences and bickering. As Republicans and Democrats rage against each other, an unlikely savior emerges. A platinum coin is minted when a machine stamps it with “One Trillion Dollars”, which is then given to the US Federal Reserve.
With this one trillion dollar coin, the US federal government has money to continue paying for services like Social Security and Medicare, avoiding catastrophic defaults.
At least that’s what some people think could be the solution to the current debt ceiling. If the idea sounds ridiculous, proponents of the coin argue that defaulting on the debt ceiling — which would cause enormous economic damage to the United States — is even more ridiculous.
In early January, the Treasury Secretary, Janet Yellen, told Congress that the country hit its debt ceiling of USD 31.4t and the Treasury would have to pursue “extraordinary measures” to ensure it does not default on payments.
That debt ceiling is a cap on the amount of money the federal government can borrow to pay for expenses already appropriated by Congress. In other words, Congress has already directed Biden to spend the money, but has not given him access to all the money he needs to carry out the spending.
Democrats need Republican buy-in to raise the debt ceiling, but the Republicans are denies to give in unless Democrats agree to spending cuts.
If it seems like deja vu, it is: battles over the debt ceiling have become more common over the past decade. The worst was in 2011, when Republicans used the debt ceiling to negotiate $1tn in spending cuts from then-President Barack Obama. Throughout the standoff, S&P downgraded the country’s credit score, making it more expensive for the US to borrow money.
This time, the White House said it would do not negotiate above the debt ceiling. The Biden administration says default will happen if Republicans refuse to raise the debt ceiling until June at the earliest. The standoff could get ugly and have big consequences the longer it drags out, but researchers say the administration has some options to avoid the worst-case scenario — including the trillion-dollar coin.
Proponents of the strategy say the coin’s legality lies in a law passed in the 1990s that allows the US Mint to mint platinum coins of any denomination.
To avoid default the mint would strike the $1tn coin, give it to Federal Reserve and cha-ching, the government would have more money to pay off its debt. When the debt ceiling is raised, the coin would go back to the mint to be melted down.
If the idea of a trillion-dollar coin sounds like something born out of the Internet, it kind of was: it was first floated in the comments section of a 2010 blog by a Georgia attorney named Carlos Mucha.
The blog was that of Warren Mosler, a prominent proponent of Modern Monetary Theory, known as MMT, which has been promoted by progressive Democrats like Alexandria Ocasio-Cortez in recent years. Put very simply, the theory holds that a government that creates its own currency cannot run out of money, and therefore does not need to act as if it has budget constraints like households do.
The billion-dollar coin encapsulates this idea. It would be a very clear display of how the US government can make its own money by actually minting it.
“A coin is the kind of thing you can talk about with your kids around the dinner table,” said Rohan Grey, a law professor at Willamette University and a proponent of MMT and minting the trillion-dollar coin. “[It] is a huge symbol of public money power. It is a very concise and concentrated symbol.
“Every time we talk about the state budget – tax, borrow, tax, borrow – we don’t even talk about creating money as the underlying power the whole framework is built around.”
While advocates of minting the coin – including former US Mint Director Phillip Diehl, who helped create the Platinum Coin Act – guarantees its legality and the process it would go through, critics question whether the Fed would accept the coin and whether it is as legally sound as its supporters say .
Investors could also see the minting of such a coin as a good reason to doubt the ability of the United States to pay off its debt, with the country having to turn to such an outlandish measure, opponents argue.
Finance Minister Yellen herself rejected the idea several times. In October 2021, she said: “I don’t think we should seriously consider it. It’s really a gimmick.” Again in January, she rejected the idea and told The Wall Street Journal The Fed might not even accept such a coin.
In addition to rejecting the coin idea, the administration has been mum on any alternative they are looking at to circumvent the debt ceiling, though they said they refused to negotiate with Republicans.
Some scholars argue for another alternative, if it comes to that: ignoring the debt ceiling, which would see the Treasury continue to sell bonds to pay off the debt.
“My view is that eventually you reach the point where there’s nothing you can do that’s legal,” said Michael Dorf, a law professor at Cornell University. “When none of your options are legal, you should choose the option that is least illegal.”
Dorf, along with frequent collaborator Neil Buchanan, a law professor at the University of Florida argued that the trillion-dollar coin is likely illegal given that the platinum coinage law is intended for commemorative coins.
“Nobody thought when they passed the bylaw that it would be used for this purpose,” he said. “It’s just a worse option than issuing debt in the normal course, as if there was no debt ceiling.”
Although ignoring the debt ceiling would mean that the executive branch is violating a law passed by Congress, Dorf and Buchanan reason that it is preferable to any actions that more closely resemble the exercise of legislative power, such as raising taxes or deciding where they must cut expenses.
Some researchers claim that a clause in the 14th Amendment states that the nation’s debt “shall not be called into question,” essentially making the debt ceiling unconstitutional. The so-called “public debt clause” could provide constitutional protection for Biden if he ignores the cap, should the issue ever come to court.
Gray and other proponents of the coin acknowledge that ignoring the debt ceiling is one option, but they see minting the coin as something that falls within existing law and makes the government’s ability to create money transparent.
“Something as big and as disruptive as the coin, it’s the kind of scale where we have to break people out of their way of thinking,” Gray said.
Amid the debate over how the administration should respond to this looming debt-ceiling crisis—mint the coin, ignore the debt ceiling, etc.—scholars agree that Democrats should have let it go or raised it higher since they held both majorities in Congress. While the idea floated around in December, it didn’t gain the momentum it needed to catch on.
“What we’re dealing with now is the same problem we had [in 2011]” Gray said. Democrats “have gotten us to this point where they had the chance to fix the problem, but [they] did not make getting rid of the debt ceiling a priority during the legislative session.”
