Was the Treasury and the Fed Right to Take the $1 Trillion Coin Off the Table?
Fresh off the heels of an ugly showdown over the fiscal cliff, lawmakers are now looking to deadline to raise the debt ceiling, which could come as early as next month, as they brace for another epic partisan battle. President Obama has vowed not to negotiate again over raising the debt ceiling and some liberal bloggers and economists proffered a novel way around the problem: instructing the Treasury to mint a $1 trillion platinum coin which would then be deposited in government coffers, replenishing federal accounts.
The idea sounds absurd, but proponents of the coin (who took their campaign to Twitter with the hashtag #mintthecoin) said it was no more absurd than the threat of not raising the debt ceiling. If Congress does not pass an increase to the debt ceiling, the government will be forced to default on its debt, risking a downgrade to credit rating and sending the American economy, in the midst of a fragile recovery, into utter chaos. Congressional Republicans are threatening to not raise the debt ceiling if Obama does not deliver on meaningful cuts to federal spending, as they nearly did in 2011's debt ceiling battle. House Speaker John Boehner has called for a dollar of spending cuts for every dollar the debt ceiling is raised.
However, federal law permits the Treasury to mint its own coins—specifically platinum coins—in denominations of its choosing. The loophole was originally created to allow the government to raise revenue through the sale of commemorative coins. Economists looking for a backup plan if Congress does not raise the debt ceiling pointed to the loophole, arguing that nothing in the law says it would be illegal for the Treasury to deposit such a coin in the Federal Reserve, which could then use the $1 trillion, or however much, to continue to pay its debts, preventing a default. When asked about the coin last week, White House Press Secretary Jay Carney danced around the question without ruling out the option. However, over the weekend, officials from both the U.S. Treasury and the Federal Reserve said they opposed the coin idea, effectively taking it off the table.
Was the Treasury and the Fed right to take the $1 trillion coin off the table? Here is the Debate Club's take: