The Trillion Dollar Coin
The fiscal cliff has just been overcome and now there's the threat of the debt ceiling. This year — just like last year — there's the threat of a blockade in Congress that might result in a lowering of America's credit rating. But Obama can get around that with one simple trick.
After the rotten compromise to avoid the dreaded fiscal cliff, a new financial battle looms: Just like last year, Congress has to raise the nation's statutory debt limit in order to avoid national bankruptcy. The Republicans oppose it, but President Obama can buy another victory with a single coin — a $1 trillion coin.
It sounds bizarre, but it's perfectly legal thanks to a provision in United States federal law. It empowers the secretary of the treasury to produce an unlimited quantity of coins in any denomination and/or design.
The law was intended to facilitate the quick production of commemorative coins, but in view of ongoing Republican obstruction in Congress concerning government debt, the United States could use a revolutionary solution to the problem.
It would work like this: The White House would direct Secretary of the Treasury Tim Geithner to mint a single coin with a value of $1 trillion. It would be deposited with the Federal Reserve to be used to pay down the nation's debt. For those expenditures already appropriated by Congress, no new debt need then be incurred.
The U.S. would not need to raise the debt ceiling and would thus avoid the trouble that leads every year to a governmental crisis followed by a downgrading of America's credit rating by Standard & Poor's. Should the same situation arise next spring, both the other ratings agencies — Moody's and Fitch — could withdraw their top ratings, with possibly dramatic results for the economy and reactions in financial markets.
The idea is attractive because the fight over the debt ceiling is nothing more than a farce. Every year, the United States spends more money than it takes in and every year the debt ceiling is routinely raised. But last year, the Republicans suddenly decided not to play along. They blocked a purely symbolic act in an attempt to get President Obama to adopt their budget cuts.
If the ceiling isn't raised, the United States can no longer incur additional debt and would be incapable of paying what it already owes. That would be a declaration of national bankruptcy. Until last year, such a scenario of applying so draconian a threat against the president would have been unthinkable.
Accordingly, it's now totally feasible — and even openly suggested by some Democrats, like New York Congressman Jerry Nadler — that the president use this extraordinary method in order to stop the Republicans. Beltway insiders hope that it will at least work as a threat to force Congress to do away with the otherwise totally theoretical debt ceiling.
After the rotten compromise to avoid the dreaded fiscal cliff, a new financial battle looms: Just like last year, Congress has to raise the nation's statutory debt limit in order to avoid national bankruptcy. The Republicans oppose it, but President Obama can buy another victory with a single coin — a $1 trillion coin.
It sounds bizarre, but it's perfectly legal thanks to a provision in United States federal law. It empowers the secretary of the treasury to produce an unlimited quantity of coins in any denomination and/or design.
The law was intended to facilitate the quick production of commemorative coins, but in view of ongoing Republican obstruction in Congress concerning government debt, the United States could use a revolutionary solution to the problem.
It would work like this: The White House would direct Secretary of the Treasury Tim Geithner to mint a single coin with a value of $1 trillion. It would be deposited with the Federal Reserve to be used to pay down the nation's debt. For those expenditures already appropriated by Congress, no new debt need then be incurred.
The U.S. would not need to raise the debt ceiling and would thus avoid the trouble that leads every year to a governmental crisis followed by a downgrading of America's credit rating by Standard & Poor's. Should the same situation arise next spring, both the other ratings agencies — Moody's and Fitch — could withdraw their top ratings, with possibly dramatic results for the economy and reactions in financial markets.
The idea is attractive because the fight over the debt ceiling is nothing more than a farce. Every year, the United States spends more money than it takes in and every year the debt ceiling is routinely raised. But last year, the Republicans suddenly decided not to play along. They blocked a purely symbolic act in an attempt to get President Obama to adopt their budget cuts.
If the ceiling isn't raised, the United States can no longer incur additional debt and would be incapable of paying what it already owes. That would be a declaration of national bankruptcy. Until last year, such a scenario of applying so draconian a threat against the president would have been unthinkable.
Accordingly, it's now totally feasible — and even openly suggested by some Democrats, like New York Congressman Jerry Nadler — that the president use this extraordinary method in order to stop the Republicans. Beltway insiders hope that it will at least work as a threat to force Congress to do away with the otherwise totally theoretical debt ceiling.
Next article![]( "The Economic Crisis and the Grief of Santa Claus")