The debt ceiling is an absurd problem. Only an absurd solution can save us.
A platinum coin worth $1 trillion — or more — would put an end to dangerous budget fights
Perspective by Zachary D. Carter
Zachary D. Carter is the author of “The Price of Peace: Money, Democracy and the Life of John Maynard Keynes.”
October 1, 2021 at 11:59 a.m. EDT
For the third time in a decade, the U.S. government is threatening to blow up the global financial system. There is no economic rationale for this threat, and its consummation promises no political advantage to anyone. It is a preposterous, silly and breathtakingly dangerous situation.
Fortunately, it can be resolved with a preposterous, silly and perfectly painless legal trick: minting a single platinum coin with a face value of $1 trillion or more.
The ongoing Senate debate over the federal debt ceiling embodies everything comical and grotesque about modern American political dysfunction. Unless Congress or the Treasury Department acts, the U.S. government will default on its debt by Oct. 18. Because U.S. Treasury bonds are a basic unit of international finance, a default would immediately throw global investment into chaos. Treasurys are formally deemed “risk-free” by bankers and bank regulators. They serve as an official benchmark of reliability for all other lending and investing, public or private, and are used as collateral for loans all over the world. A default would force an immediate revaluation of a wide range of matters, including money market funds and the geopolitical status of China and the European Union.
According to the number-crunchers at Moody’s, a U.S. government debt default would destroy 6 million American jobs and send the domestic unemployment rate to 9 percent. But even this valiant effort to quantify the potential damage understates the risk: It’s simply impossible to predict how major investors and other governments would respond to the shock of a previously inconceivable event. We don’t really know how severe or prolonged the damage could be.
The worst part, though, is that if there is a default, it will not be because the government can’t afford to pay its bills or failed to market its bonds. We are instead the improbable captives of a technicality established during World War I — an era when the Bank of England called the tune for the global economy and money was denominated in different weights of gold.
Until 1917, the U.S. government typically issued debt at the specific direction of Congress. A law was passed every time the government wanted to raise money from investors, a situation that proved inconvenient to the exigencies of 20th-century warfare. So Congress simplified its legislative calendar by deputizing the Treasury Department to take care of whatever borrowing might be required to meet the war spending Congress had approved. A formal limit on the amount of debt Treasury could sell was imposed to prevent bureaucrats from running wild with their new responsibilities.
So the debt ceiling was not designed to be an important instrument of economic policy: Congress retained the power to set all spending and tax terms, as it does today. But Congress also must vote every now and then to raise the limit on Treasury’s authority to borrow. Failing to do so means the government can’t meet the obligations it has already approved.
A decade ago, Senate Minority Leader Mitch McConnell (R-Ky.) decided to turn what had always been a routine process — ensuring that the government paid its bondholders — into a political weapon. In 2011, the GOP wanted to force President Barack Obama to accept a slate of conservative legislative demands; the party would vote to raise the debt ceiling, but only if Obama agreed to cut a bunch of spending on programs for the poor. Publicly, Republicans pitched this high-stakes hostage-taking as an act of fiscal responsibility. America had too much debt, they insisted, and Republicans weren’t going to stand for it.
Of course, America kept accumulating debt after Obama and the Republicans eventually cut a deal, and it kept on accumulating debt after they made another debt ceiling deal in 2013, and more debt after President Donald Trump cut taxes in 2017, and even more after Trump spent trillions on coronavirus relief in 2020. One essential lesson that economists have learned from the past decade is that the supposed dangers of a large national debt have been vastly overstated. None of this debt caused a financial crisis, fueled hyperinflation or prevented us from responding to a major international public health crisis, as the doomsayers had argued.
The chief danger posed by the debt today lies in the possibility that the United States might just default for fun. This time around, Senate Republicans aren’t even pretending to pursue a policy goal; they are not demanding concessions to conservative agenda items in other areas in exchange for their support. They think voting to raise the debt ceiling will be unpopular, and they hope to deploy the vote in attack ads targeting Democrats next year. McConnell tacitly acknowledges that the whole thing is a media stunt, insisting that the government will not, in fact, default — even if the actions of his caucus make default more likely. Asked this past week why he thinks Democrats will find a way to raise the debt ceiling without Republican votes in a 50-50 Senate, McConnell replied, “Because we always do.”
Until we don’t. Senate Majority Leader Chuck Schumer (D-N.Y.) actually likes the politics of universal Republican opposition — he wants to brand the GOP as “the party of default” — but he contends that the formal process for holding a debt ceiling vote cannot be completed before the default deadline without Republican support.
This is why House Judiciary Committee Chairman Jerry Nadler (D-N.Y.) wants the Biden administration to mint a platinum coin. Under an obscure provision of a federal appropriations law passed in 1996, the president can authorize the Treasury to mint platinum coins at any face value it chooses. (Sorry goldbugs, the coin really does have to be platinum.) The Treasury could mint, say, a $1 trillion coin, deposit it at the Federal Reserve and then use the funds to pay the government’s obligations without incurring additional debt, obviating the need to borrow any more money for as long as the Biden administration would like — just as if it had a trillion $1 bills on deposit in a bank. And no, you don’t need to lose any sleep over the prospect of the coin being stolen. Nobody would accept it as payment (imagine making change for $1 trillion!), and anyway, the Treasury could always mint another one.
This was something of a joke when it was first popularized by a lawyer named Carlos Mucha during the 2011 debt ceiling standoff. It was a clever, silly and extremely efficient solution to a very dangerous problem — but not many people thought it would actually happen. A decade later, during yet another artificial debt limit crisis, it seems like an idea whose time has come.
The key to this process is that it is economically meaningless. It does not authorize additional spending. It simply allows Treasury to fulfill the fiscal orders Congress has already placed. The value of the coin could be $1 trillion, $100 trillion or $1 quadrillion, and it would have the exact same effect on the day-to-day workings of the economy.
Strange as it is to consider, minting a coin with a ridiculous number of zeros is the most responsible way for President Biden to resolve this situation. Congress could functionally eliminate the debt ceiling by holding a vote to raise the limit to, say, $1 quadrillion. But the political and practical hurdles for that vote would remain, and a $1 quadrillion coin would be just as good.
The debt ceiling was never designed to be a weapon of destruction. Legislators should not have the power to threaten global financial calamity in pursuit of increasingly petty partisan aims. With a platinum coin or two on account at the Fed, the debt ceiling could be rendered meaningless indefinitely, eliminating a wholly artificial and unnecessary source of crisis. Silly problems demand silly solutions.