The $1 Trillion Coin: A Controversial Answer to America’s Debt Crisis?
As the Biden administration and Congress face a looming deadline to increase the debt ceiling to $31.4 trillion, a controversial solution to avert a financial crisis has gained attention: Could the Treasury mint a $1 trillion platinum coin to solve the issue?
The idea first broached in 2011 is based on a 1997 law which permits the Treasury secretary (now Janet Yellen) to mint platinum coins of any denomination. The concept is that the Treasury would deposit the coin at the Federal Reserve, giving the Treasury a $1 trillion credit that it can use instead of borrowing to pay the government's obligations.
But the plan isn’t without its critics. Senator Mike Lee, a Utah Republican, introduced the Cancel the Coin Act to close the loophole in January 2021, and many opponents fear that if there was a possible easy way out in the form of a $1 trillion coin, it might make it less likely that there would be a debt ceiling agreement and raise the possibility of the country falling into an economic crisis, even by accident.
The nation technically hit its debt limit on January 19, and Treasury Secretary Janet Yellen has been employing accounting maneuvers it calls “extraordinary measures” to allow for continued borrowing by shifting money between federal accounts.
Certain academics propose that a clause in the 14th amendment implies that the nation's debt “shall not be questioned”, thus implying that the debt limit is unconstitutional. Nobel Prize-winning economist Paul Krugman is among the supporters of the idea, and he used a Twitter thread to take skeptics to task on its feasibility.
But the feasibility of averting America’s debt crisis by minting a valuable piece of currency is far from clear. It’s up to the Federal Reserve to decide whether to accept the coin, and investors could see the minting of such a coin as a good reason to doubt the US’s ability to pay off its debt. The Republican party is pushing for the Treasury to prevent default by selecting which creditors to pay with limited resources, whereas the Democrats plan to utilize a complicated legislative maneuver.
Ultimately, if Congress and the White House can’t agree to raise the debt limit by an uncertain date in June or the months afterward, the government will be unable to pay its obligations. The Biden administration says default will happen if Republicans refuse to raise the debt limit by June at the earliest.
0. “$1 Trillion Coin: An Idea to Avoid Government Default” Henry Herald, 3 Feb. 2023, https://www.henryherald.com/arena/1-trillion-coin-an-idea-to-avoid-government-default/article_10ee1f8e-49c6-5451-a322-d7ec83633d9c.html
1. “The $1 trillion coin and the other (unrealistic) ways to avoid raising the debt limit” The Boston Globe, 28 Jan. 2023, https://www.bostonglobe.com/2023/01/28/nation/1-trillion-coin-other-unrealistic-ways-avoid-raising-debt-limit/
2. “Can a trillion-dollar coin end the US debt-ceiling standoff?” The Guardian, 31 Jan. 2023, https://www.theguardian.com/business/2023/jan/31/one-trillion-dollar-coin-debt-ceiling-solution
3. “Can a $1 TRILLION platinum coin solve the U.S. debt crisis?” Daily Mail, 3 Feb. 2023, https://www.dailymail.co.uk/news/article-11707387/Can-1-TRILLION-platinum-coin-solve-U-S-debt-crisis.html
4. “Can a trillion-dollar coin break the debt gridlock in Washington?” Orcasonian, 3 Feb. 2023, https://theorcasonian.com/can-a-trillion-dollar-coin-break-the-debt-gridlock-in-washington
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