There’s an idea floating around that is undoubtedly crazy. But it has gained traction and support from some of the biggest economic thinkers in the U.S. As another showdown over the debt ceiling looms, experts say the whole thing could be put to rest by simply minting a $1 trillion US coin.
Yes, a trillion-dollar coin. It’s been endorsed by Nobel Prize laureate Paul Krugman and debated by Treasury Secretary Janet Yellen, though she didn’t give the idea a ringing endorsement.
“I’m opposed to it, and I don’t believe we should consider it seriously,” she said in interview with CNBC. “It’s really a gimmick, and what’s necessary is for Congress to show the world can count on America paying its debts.”
The $1 trillion coin idea is indeed a gimmick. But it’s also perfectly legal. The man credited with coming up with the idea says it’s a loophole to get around an equally absurd idea: the U.S. debt ceiling.
“On the one hand, I think it’s funny,” said Atlanta-based lawyer Carlos Mucha. “But on the other, honestly it’s sad that what’s standing between us and the government having an economic crisis is this gimmick.”
8:34Could a trillion-dollar coin solve the U.S. debt ceiling crisis?
So, how did we get here? It starts with the debt ceiling.
The U.S. Congress passes bills, and those bills become laws and policies. But there’s a catch: Congress also has to give permission to the federal government if it wants to take on more debt to pay for these projects.
That permission is called the debt ceiling. It used to be little more than a technicality. After all, why would Congress pass legislation approving new spending if it had no interest in allowing the government to borrow the money to spend the money?
Krugman, a professor of economics and international affairs at Princeton University, says not allowing the government to raise money to cover its expenses would make no sense.
“Not just because it would cripple government operations,” he wrote in this New York Times op ed. “But also because it would threaten financial havoc: U.S. government securities are the bedrock of the global financial system, used for collateral in many transactions. Threatening federal cash flows could therefore provoke a worldwide meltdown.”
And yet every year, there is endless hair pulling as the parties squabble over a deal to raise the debt ceiling.
One coin to rule them all
It was during one of these debates in 2011 that Carlos Mucha had an idea.
“The U.S. Mint has the authority to mint $1 coins,” he told CBC Radio’s Day 6. “They also have the authority to scale it up; they can mint a trillion-dollar coin.”
Mucha checked a law introduced in 1996. And sure enough, under the section generally reserved for platinum commemorative coins, the treasury secretary has full discretion.
“The Mint director drafted a law, it gave it to Congress and they passed it, that authorized the secretary to issue [coins] in whatever design, quantity and denomination that the secretary chose,” Mucha said.
So technically, Yellen could order the U.S. Mint to make one single coin valued at $1 trillion. The mint would then deliver that coin to the Federal Reserve, which is required by law to accept legal tender. The Fed would credit the Treasury Department’s bank account and poof, the government no longer needs to borrow money to pay its bills.
Gimmick? Sure. But it would work, and Krugman says Democrats need to do whatever it takes to end the hostage negotiations that the debt ceiling has turned into.
“So go ahead, Democrats, and do whatever it takes to get through this,” he wrote in the New York Times. “Gimmickry in the defence of sanity — and, in an important sense, democracy — is no vice.”
White House press secretary Jen Psaki was asked about this option, and the idea of barring the debt ceiling as unconstitutional.
“We obviously look at a range of options, and none of those options were viable,” she said.
One key concern about the idea is that injecting a trillion dollars into the economy would inevitably lead to inflation.
Avery Shenfeld, chief economist at CIBC, says the way in which a government gets money to spend doesn’t really have a bearing on inflation.
“It really wouldn’t do anything other than allow the government to spend the money already authorized (by Congress),” Shenfeld said. “If the government was spending too much and causing inflation, then Congress should not have approved the level of spending that it did,” he says.
A $1 trillion coin sounds more like an episode of The Simpsons than an article on Bloomberg. And as fate would have it, The Simpsons was ahead of its time on this.
In one episode, the U.S. government printed a $1 trillion bill to help Europe rebuild after the Second World War. But the bill was, predictably, stolen by the show’s richest man, Montgomery Burns, and never seen again.
The next debt ceiling debate will come to a head in early December. Look for the debate over the trillion-dollar coin to resurface at the same time.