The Trillion Dollar Coin Idea Is Back As A Wacky Way To Prevent Financial Armageddon

By Beverly J. Oaks Last updated Sep 24, 2021

The idea, which has been around for about a decade, is that the president could issue a $ 1,000 billion “commemorative” coin, deposit it with the Federal Reserve, and allow the government to continue paying its bills.

A US government default on its debt would be a blow to the economy, leading to widespread job losses, higher interest rates and economic hardship that would last for years. Treasury Secretary Janet Yellen predicted “widespread economic catastrophe” if the debt ceiling was not raised, with millions of Americans suddenly strapped for cash.

The President has clear authority to issue such commemorative coins, which are typically in denominations of $ 10 or $ 5, and are sold by the United States Mint to coin collectors. These coins released this year include one in honor of the National Law Enforcement Memorial and another in honor of Christa McAuliffe, the teacher killed in the Space Shuttle Challenger explosion in 1986.

Some proponents of the plan argue that there is no limit to the value of these coins, so a president clearly has the power to issue a $ 1,000 billion coin, or even a 100,000 coin. billions of dollars. But opponents argue it would be such a blatant overshoot that it would lead to impeachment.

The Twitterverse has fun with the idea: supporters range from financial podcast hosts To recently retired baseball players. But the White House rejected the idea out of hand, saying it was up to Congress to do its job and raise the debt ceiling like it has done in the past.

What the White House says

“There is only one viable option for dealing with the debt limit: Congress must raise it or suspend it, as it has done about 80 times, including three times in the last one. administration, “White House spokesman Mike Gwin told CNN, repeating the statement. he had already given Politico on the subject. He said the idea of â€‹â€‹issuing the coin was “not being considered”.

However, the administration of former President Barack Obama also rejected the idea of â€‹â€‹issuing the coin as a way to meet the debt ceiling. But in an interview Obama gave to Pod Save America in his final days, Obama admitted that the idea for the trillion dollar coin was something he discussed with the then Treasury Secretary, Jack Lew.

â€œWe were having these conversations with Jack Lew and others about the options available, as this had never happened before,â€ he said. “There were all kinds of wacky ideas about how you could potentially have this huge room … This theory [was] that I had the power to issue this huge trillion dollar coin, a trillion dollar commemorative coin, and on that basis we could repay the US treasury bills. “

What the experts say

Few serious economists really defend the coin solution. Most notable was the New York Times columnist Paul krugman, who received a Nobel Prize in economics, who said last year that the use of the coin “would be just an accounting gimmick” that “would simply allow the Treasury to bypass GOP blackmail” on the ceiling debt.

But as serious as a flaw may be, most experts oppose the use of the trillion dollar coin. They say such a bold way to avoid default would shake confidence in the dollar and the US Treasury as much if not more than an actual default.

â€œThe trillion dollar coin is a very flawed effort to bypass the debt limit that will make a bad situation worse,â€ said Mark Zandi, chief economist at Moody’s Analytics, who warned that a default would be â€œan Armageddon financial”.

“Global investors will know that this is not a sustainable way to pay government bills, and given the constitutional crisis it would trigger, it will increase the chances that they will not be paid in a timely manner at some point. in the future. The trillion dollar coin will not prevent a financial crisis and a downturn in the economic crisis. The only winner in all of this would be cryptocurrency. “

Using the coin to pay off US debts would shake confidence in the dollar going forward and only draw the attention of investors around the world to the country’s governance issues, said Philip Wallach, senior researcher at the American Enterprise Institute, a conservative think tank.

â€œIt’s so glitzy and fancy, it’s the worst thing you can do,â€ he said. â€œIt’s really designed to capture the imagination of the whole world. Ultimately, the stability of a fiat currency hinges on nothing more than people’s belief that money is worth what they think it is. ‘It’s worth. Doing something like the trillion dollar coin is a great way to get people to think the dollar isn’t such a great currency. “

Right now, the Treasury Department is taking what it calls “extraordinary measures” to keep paying its bills, but Yellen has said it will run out of those options by mid-October. Wallach said there are likely other actions that can be taken if the debt ceiling is not raised by then, aside from the flashy trillion dollar coin.

â€œI think it would be irresponsible of the Treasury not to have a whole menu of options to generate cash,â€ he said. “They would come up with much more obscure and boring innovations. I trust them.”

The Trillion Dollar Coin Idea Is Back As A Wacky Way To Prevent Financial Armageddon

What the White House says

What the experts say

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