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The trillion-dollar coin: Is it a solution to the debt ceiling drama — or a gimmick?

It sounds like the plot of a PG-13 political action movie: The U.S. might need a $1 trillion coin to save itself. But this week, the idea of minting one was being floated as a way around the federal debt-ceiling crisis to avert a possible default and the economic catastrophe that could ensue.

The U.S. government runs out of money to pay its bills on Oct. 18, according to the Treasury Department, and if Congress does not raise the debt limit — the amount of money the government can borrow — economists warn it could trigger a recession.

One potential remedy is to have the U.S. Mint strike a $1 trillion platinum coin, an idea that first surfaced during another debt-ceiling debate in 2011.

What is the $1 trillion coin?

Congress spends more each year than it collects in revenue. Though the government borrows money to make up the difference, there’s only so much debt it can carry.

Enter the $1 trillion coin. The idea is that the president could order the treasury secretary to mint a $1 trillion coin out of platinum, then deposit it with the Federal Reserve. Then, just like that, the government would have an additional $1 trillion to pay off its obligations. The debt ceiling is no longer an issue.

Why platinum? The Treasury is limited by law on how much paper money and gold, silver and copper coins it can circulate at once. But there’s no limit on how many platinum coins it can circulate, or on their value.

How would the coin avert a government shutdown?

A shutdown occurs when the federal government no longer has enough money to pay its bills. The lack of funds forces it to close certain functions — such as monuments on the National Mall and passport services — that it can’t afford to finance for the time being. Essential services, such as the military and air-traffic control, continue to operate.

With the theoretical $1 trillion coin on deposit, the government could pay its bills without additional borrowing, making the debt ceiling a nonissue and, thus, averting a government shutdown.

What’s the downside to the $1 trillion coin?

Experts are not entirely sure, mostly because the idea is entirely theoretical.

A major concern for economists is hyperinflation. Minting the $1 trillion coin would be like creating money out of thin air. When all that new money poofs into existence, the other currency in circulation becomes less valuable.

Then there’s the question of what a $1 trillion coin would mean for U.S. monetary and fiscal policy. Monetary policy means making decisions about the money in the economy. That’s mostly left up to the Fed, which is somewhat insulated from political tinkering. Fiscal policy means making decisions about what the government spends money on. That’s an entirely political process left up to Congress and the president.

The $1 trillion coin would completely mix the two. It would have the president use monetary policy (creating new money) to solve a fiscal problem (the government is running out of borrowing capacity). Treasury Secretary Janet Yellen said Tuesday that such a move “compromises the independence of the Fed.”

What would the $1 trillion coin look like?

It’s not important, because the coin would never see the outside world. This is a coin that would be minted by the Treasury, then immediately deposited into the Fed. It is not going to circulate, as its sole purpose is to inject more money into the federal government’s accounts, and to keep government operations rolling.

What are alternatives to the $1 trillion coin?

The easiest thing would be for Congress to raise the debt ceiling. Raising or suspending the debt limit requires 60 votes in the Senate to defeat a filibuster. That means 10 Republicans need to vote with Democrats on the measure. But Republicans are blocking Democrats from proceeding — even though raising the debt limit is generally a routine and bipartisan affair.

Another alternative is to simply keep borrowing money and paying the country’s bills even if the government is not supposed to take on more debt.  The debt ceiling, some legal scholars claim, conflicts with the Fourteenth Amendment to the Constitution. Section 4 of the amendment states: “The validity of the public debt of the United States … shall not be questioned.”

In other words, it is simply unconstitutional for the U.S. to default on its debt?  However, it is also unconstitutional for the president to defy a law passed by Congress.

“They would have two choices — each of which is unconstitutional,” one of the people aware of the administration’s discussions said. “This is the theory of the ‘less constitutional choice’: If the president did this it would violate the Constitution, but to not do it would violate the Constitution even more seriously.”

·         So, what do you think about the Trillion Dollar Coin?

·         Should the feds do it?

·         Will it cause hyperinflation?

·         What should it look like?

·         Who or what image might be minted on the front or back?

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