If it’s debt ceiling crisis season, then it’s also time for the craziest solution to the problem: Getting President Joe Biden to issue a $1 trillion coin.
The idea, which has been around for about a decade, is that the president can issue a $1 trillion “commemorative” coin, deposit it with the Federal Reserve, and allow the government to keep paying its bills.
A US government default on its debt would deal a body blow to the economy, resulting in widespread job losses, higher interest rates and economic pain that would last for years. Treasury Secretary Janet Yellen has predicted a “widespread economic catastrophe” if the debt ceiling isn’t raised, with millions of Americans suddenly strapped for cash.
America is in danger of that scenario if a deadlocked Congress won’t raise the debt ceiling in time. The $1 trillion coin solution could effectively bypass Congress.
The coin solution
The president does have a clear power to issue such commemorative coins, which are typically in denominations of $10 or $5, and are sold by the US Mint to coin collectors. Such coins issued this year include one honoring the National Law Enforcement Memorial and another honoring Christa McAuliffe, the teacher killed when the Challenger space shuttle exploded in 1986.
Some advocates of the plan argue there is no limit on the value of those coins, so a president has the clear power to issue a $1 trillion coin, or even a $100 trillion coin. But opponents argue that would be such gross overreach as to prompt impeachment.
The Twitterverse is having fun with the idea: Supporters range from financial podcast hosts to recently retired baseball players. But the White House dismissed the idea out of hand, saying it’s up to Congress to do its job and raise the debt ceiling as it has done in the past.
What the White House is saying
“There is only one viable option to deal with the debt limit: Congress needs to increase or suspend it, as it has done approximately 80 times, including three times during the last Administration,” White House spokesperson Mike Gwin told CNN, repeating the statement he had previously given to Politico on the topic. He said the idea of issuing the coin is “not being considered.”
However, former President Barack Obama’s administration also dismissed the idea of issuing the coin as a way of dealing the the debt ceiling. But in an interview that Obama gave to Pod Save America in his final days, Obama admitted that the idea of the trillion dollar coin was something he had discussed with then Treasury Secretary Jack Lew.
“We were having these conversations with Jack Lew and others about what options in fact were available, because it had never happened before,” he said. “There were all kinds of wacky ideas about how potentially you could have this massive coin…. This theory [was] that I had the authority to just issue this massive trillion dollar coin, a trillion dollar commemorative coin, and then on that basis we could pay off US Treasuries.”
What experts say
Few serious economists actually advocate for the coin solution. The most notable was New York Times columnist Paul Krugman, who has a Nobel Prize in economics, who said last year that using the coin “would just be an accounting gimmick” that “would just allow Treasury to bypass GOP blackmail” on the debt ceiling.
But as bad as a default would be, most experts oppose the use of the trillion dollar coin. They say that such an audacious way of avoiding default would shake the confidence in the dollar and US Treasury as much or more than an actual default.
“The trillion dollar coin is a badly flawed effort to workaround the debt limit that will make a bad situation even worse,” said Mark Zandi, chief economist for Moody’s Analytics, who has warned that a default would be “financial Armageddon.”
“Global investors will know that this isn’t a sustainable way to pay the government’s bills, and given the constitutional crisis it would ignite, it will increase the odds they won’t get paid in a timely way at some point in the future. The trillion dollar coin will not forestall a financial crisis and economic crisis downturn. The only winner in all this would be cryptocurrency.”
Using the coin to pay America’s debts would shake the confidence in the dollar going forward, and would only call attention of investors worldwide to problems of governing the country, said Philip Wallach, senior fellow at the American Enterprise Institute, a conservative think tank.
“It is so glitzy and gimmicky, it’s the worst thing you could do,” he said. “It’s really designed to capture the imagination of the whole world. At the end of the day, a fiat currency’s stability doesn’t rest on anything other than people’s belief that money is worth what they’ve believed it to be worth. Doing something like the trillion-dollar coin is a great way to get people to think that dollar is not such a great currency.”
Right now the Treasury Department is taking what it calls “extraordinary measures” in order to keep paying its bills, but Yellen has said it will run out of those options sometime in the middle of October. Wallach said there are probably other steps that can be taken if the debt ceiling isn’t raised by then, short of the flashy trillion-dollar coin.
“I think it would be irresponsible for the Treasury not to have a whole menu of options to generate cash,” he said “They would come up with innovations that are way more arcane and boring. I have faith in them.”