The world economy is once again on a terrifying collision course with a technicality in American public finance. Luckily, president Joe Biden can solve the problem, if he’s willing to think outside of the box and mint a trillion-dollar coin.
The US government borrows billions annually to obtain money to spend on activities approved by Congress. In the 19th century, these bonds were approved individually. To speed things up in the 20th century, lawmakers decided to replace this process with a debt limit in order to streamline things. That’s right, the debt limit was designed to make it easier to borrow more.
The US is now mere weeks away from hitting that limit—because borrowing needs fluctuate with incoming taxes and outgoing spending, we can only forecast this roughly—at which point Treasury secretary Janet Yellen will have some tough decisions to make about how to fulfill her constitutional obligation to preserve the full faith and credit of the US.
In recent decades, government borrowing has become a political football, but in the partisan crossfire, one overwhelming fact is true: Spending and taxation decisions are separate from the debt limit. Failing to lift the limit is simply deciding not to pay bills already incurred.
And not paying these bills would be disastrous. A US debt default would send stock markets plunging, interest rates rising, and severely hurt the global economy, where Treasury debt is seen as one of the safest assets, according to economists and government officials of nearly every stripe. Brinksmanship around the debt ceiling in 2011 led to US’s credit rating to be downgraded, costing Americans $19 billion in the following decade.
The debt ceiling isn’t about spending or taxes
Republicans are attempting to use the debt ceiling as leverage to change policy. This ignores their own role in racking up this debt under the last administration, when president Donald Trump and Republican-controlled Congresses raised the debt limit three times and borrowed $7.8 trillion, compared to today’s total national debt of $28 trillion. Nor have they articulated what kind of concessions they would like to see in exchange for raising the limit, which will have to be done regardless of the size of the federal spending plan expected to be enacted this week.
Democrats in the House of Representatives have voted to lift the debt ceiling, but the Senate is evenly split between the two parties. Thanks to the filibuster, raising the limit with a simple majority is out of the question. The president’s party could raise the debt limit using a procedure called budget reconciliation to force a simple majority vote—and arguably should have already done this—but at this point that is a complicated and time-consuming process and it’s not clear now that it can be done in time.
Luckily, Biden has all the tools he needs to solve this impasse. During the debt ceiling wars of the Obama era, a sharp-eyed lawyer named Carlos Mucha noted an obscure law that allows the US government to mint platinum coins in any denomination. The US Treasury secretary could mint such a coin at a value of, say $1 trillion, deposit it at the Fed to pay off outstanding Treasury bonds, and not have to worry about the debt limit.
There are a few other methods by which the president might ignore the debt ceiling, including declaring it unconstitutional or creating new debt securities, but the coin is arguably the most elegant solution, and certainly the most popular on Twitter, where advocates using the #MTFC hashtag—mint the fucking coin, to be clear—are calling on Biden to avoid a crisis and the surrounding dramatics altogether.
A decision to mint the coin would likely survive legal challenges (pdf). And while such a move might be criticized as monetizing the debt, there’s little reason to believe it would be inflationary, since it is effectively an accounting trick that would not increase the amount of money in the economy. While it would represent a novel use of executive power, it would not take away lawmakers’ coveted power of the purse: The president could only spend the money lawmakers approve, and collect the revenue they allow.
What’s different about today’s coin debate
If a trillion-dollar platinum coin sounds ridiculous, well, that’s a key reason it hasn’t been tried: During the Obama administration, policymakers just couldn’t bring themselves to embrace the coin. That misguided sense of decorum may still be in place, with a White House spokesperson recently insisting the only path forward is for Republicans to support a debt limit increase.
But if, as observers fear, Congress does not act, Biden will face a choice between doing something that seems ridiculous to save the economy, plunging into default, or reducing his spending plans significantly to convince Republicans to play ball. The US is crying out for investment to fight climate change, improve aging infrastructure, and improve the resiliency of its supply chains, all while unemployment remains high.
Hopefully, Biden recalls from his time as Obama’s vice president that the 2011 deal to lift the debt limit pushed the US into austerity and slowed the pace of recovery from the financial crisis. Obama’s presidency arguably never recovered. Federal Reserve chair Ben Bernanke came as close to begging for public spending as it is possible for a Fed chair to do in his annual appearances at legislative hearings.
Perhaps more importantly, recent experience has prepared the ground to be seeded with more ambitious economic policies. Research into the potential of a universal basic income, and pandemic experiments in cash relief checks and child allowances, have underscored the importance of public spending. The discussion of Modern Monetary Theory promoted by economist Stephanie Kelton has helped policymakers understand that a US government that controls its own currency doesn’t need to worry about arbitrary levels of debt as much as the actual resources required by the economy. Likewise, the spread of cryptocurrency has helped clarify that the value of fiat money is a social construct, not a function of some gold hoard or a natural law.
All these factors should make clear that a responsible president would not let the economy be held hostage to the debt limit. Economic policymakers like to be thought of as serious, both because their work is undeniably weighty and because investors seek certainty from monetary authorities. Being serious about appearances at the risk of an economic crisis, however, is not being serious at all. If lawmakers will not avert disaster, minting a platinum coin could be the most serious approach of all.