Can A Trillion Dollar Coin Resolve the Debt Ceiling Crisis?

Dec 31, 2023

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The latest standoff over raising the nation's debt ceiling is giving new life to an old theory about how to avoid a default.

By Alan Rappeport

WASHINGTON — The debt limit standoff between Republicans and Democrats has elevated questions about creative solutions for averting a crisis, including one that at first blush might seem unthinkable: Could minting a $1 trillion platinum coin make the whole problem go away?

What was once a fringe idea is now being presented to top economic policymakers as a serious remedy.

Asked on Wednesday about the notion that there might be another option if Congress failed to lift the borrowing cap, Jerome H. Powell, the Federal Reserve chair, said there was not.

"There's only one way forward here, and that is for Congress to raise the debt ceiling so that the United States government can pay all of its obligations when due," Mr. Powell said. "Any deviations from that path would be highly risky."

Treasury Secretary Janet L. Yellen was unable to avoid the debt limit crisis brewing back in the United States as she crisscrossed Africa last week and fielded queries about the coin, which she dismissed as a "gimmick."

Instead, Ms. Yellen sent two stern letters to Speaker Kevin McCarthy outlining the "extraordinary measures" she was taking to ensure the United States can keep paying its bills and urged Congress to "act promptly" to protect the nation's full faith and credit by lifting the debt limit.

President Biden told Mr. McCarthy on Wednesday that while there was room for discussion about addressing the deficit, Congress would have to pass a debt limit increase with no strings attached to avoid a financial cataclysm. Mr. Biden and Mr. McCarthy met at the White House for more than an hour in a discussion that carried high stakes, with the federal government set to exhaust its ability to pay its bills on time as early as June.

But the idea of a coin still has its fair share of supporters, and they are not giving up.

As political gridlock over the borrowing cap has hardened, the notion that the Treasury secretary could defuse the debt limit drama with her currency minting powers has re-emerged, including on Twitter, where the hashtag #MintTheCoin is again buzzing.

Still, the feasibility of averting America's debt crisis by minting a valuable piece of currency is far from clear. Here's a look at origins of the coin, how it might be used and the potential consequences.

If Congress cannot reach an agreement by early June to increase the debt limit, which was capped at $31.4 trillion in late 2021, Ms. Yellen's ability to use government accounting tools to delay a default could soon be exhausted, and the United States would be unable to pay all of its bills on time.

This could cause a deep recession and potentially a financial crisis, shutting down large swaths of the economy and preventing beneficiaries of Social Security and Medicare from receiving their money. Although Ms. Yellen has the power to move funds around government accounts to delay a default, eventually the government's coffers will run dry without the ability to raise more tax revenue or borrow more money.

That's where the coin comes in. Proponents of the idea believe Ms. Yellen could use her authority to instruct the U.S. Mint to produce a platinum coin valued at $1 trillion — or another large denomination — and deposit it with the Federal Reserve, the government's banker, which manages the Treasury Department's "general account."

Backers of the coin say this would allow the federal government to draw on the funds as needed and continue paying its bills until a deal was reached or until the $1 trillion was spent and another coin must be minted.

The trillion-dollar-coin concept first emerged in 2010 before the first big Obama-era debt ceiling fight. A musing in the comments of a popular blog on economics and finance about the viability of minting such a coin to create money out of thin air and avoid default spurred a debate about creative ways to avoid an economic catastrophe.

The logic is that language in a 1997 law that Congress passed to help the U.S. Mint make more money from bullion sales gave the Treasury secretary the broad discretion to mint platinum coins of any denomination. That power, proponents of the idea say, gives the secretary a way to keep fulfilling the nation's financial obligations even if the government's ability to keep borrowing has been frozen.

The idea captured the imagination of academics and pundits alike, leading to calls on social media to mint the coin and approving columns from the likes of Joe Weisenthal, now a Bloomberg writer and podcast host, and Paul Krugman, the New York Times columnist, who declared in 2013 that if all else failed, "mint the darn coin."

These days the idea appeals broadly to proponents of modern monetary theory, an economic philosophy that argues that deficits should not be a constraint on government spending. It has also found support among some legal scholars such as Rohan Grey of the Willamette University College of Law, who regularly jousts with coin critics on Twitter and argues that the notion is less crazy than allowing the United States to default.

"At least the option of a catastrophic cliff has been taken off the table," Mr. Grey said of the coin.

It is far from clear that such a gambit would calm global markets or preserve America's credit rating, which suffered a downgrade after the 2011 debt limit standoff.

Mr. Grey suggested that such a unilateral move would most likely be challenged at the Supreme Court and acknowledged that the bond markets could get jittery about the deficit spending without the issuing of new bonds. (In that event, he suggests, the Fed might want to sell more of the bonds that it has in its portfolio.)

To some, the notion that the coin is a safety valve makes the debt limit standoff even more dangerous.

"It's harmful to create the sense that there's something there when there's not," Jacob J. Lew, who was Treasury secretary from 2013 to 2017 during the Obama administration, told The New York Times during the debt limit stalemate of 2021. "It leaves open the possibility of an accident."

Mr. Lew said that when he was Treasury secretary, the administration's lawyers debated alternatives for circumventing the debt limit during standoffs with Congress, but they concluded that none of those options were viable. If Congress does not ultimately raise or suspend the debt limit, he warned, it will lead to cascading problems and financial upheaval.

The most prominent skeptic is the current Treasury secretary. Ms. Yellen has argued repeatedly that the idea of minting a trillion-dollar coin does not warrant serious consideration. Asked about it in 2021, she also warned that such a move would encroach on the independence of the Federal Reserve.

In an interview with The Wall Street Journal, Ms. Yellen suggested that the Fed might not even accept the coin.

"It truly is not by any means to be taken as a given that the Fed would do it, and I think especially with something that's a gimmick," she said. "The Fed is not required to accept it. There's no requirement on the part of the Fed."

Yet those who think the coin should be taken seriously were heartened by the fact that Ms. Yellen did not question the legality of the maneuver.

Philip N. Diehl, who was director of the U.S. Mint from 1994 to 2000, said Ms. Yellen's responses were predictable because the coin was not the preferred way to deal with the debt limit. However, he said she would be wise to keep an open mind.

"As secretary of the Treasury, I would want to have a solution in my back pocket that I would be able to pull out in order to avoid default," said Mr. Diehl, who was also a chief of staff at the Treasury Department during the Clinton administration.

Mr. Diehl helped write the legislation in the 1990s that ultimately gave the secretary the power to mint the coin. He believes it is a viable solution but said he hoped it never had to be tested.

"I hope sanity prevails," he said.

Alan Rappeport is an economic policy reporter, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters. He previously worked for The Financial Times and The Economist. @arappeport

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