This Easy Way Out Won’t Work for the Debt Ceiling

Amanda Heckman|May 13, 2023

Tick… tock… tick… tock…

That’s the sound of the seconds being wasted as the government argues over how we’ll pay our debt come June 1. (We all know how much our government loves to waste time.)

Party representatives are fighting over which side gets to be the “hero” as election season draws nearer.

Raise the debt ceiling with no strings attached?

Mandate spending cuts as part of the deal?

Or…

Just mint a trillion-dollar coin?

Don’t look now… but that third option is quickly gaining fans.

Out of Money

The U.S. is about to run out of money to pay its bills. It won’t be the first time this has happened… and it certainly won’t be the last. The government has had to raise the debt ceiling 78 times since 1960.

That’s why many folks say not to worry about this latest round… Our fearless “leaders” will figure it out like they always do.

After all, if we were to default… there’d be trouble.

The U.S. Treasury Department wouldn’t be able to issue any more Treasury bills, bonds or notes.

It could pay bills only as it receives new tax revenues. And the drop in revenue from this year’s tax season is one of the reasons we’re in trouble.

Without enough revenue, the secretary of the Treasury would have to choose between paying federal employee salaries, Social Security benefits or the interest on the national debt.

Even a brief default – which could happen if the two sides can’t get a deal done – could cause millions of job losses and trigger a recession… and send interest rates soaring.

Ouch.

No politician wants that blood on their hands.

As Washington finally gets serious about finding a solution (to a problem we knew about back in January, when we officially hit the debt ceiling)…

Many pundits and economic “experts” are pushing for a coin to erase all our troubles.

Poof!

Minting a trillion-dollar coin was first proposed ahead of the 2011 debt ceiling crisis. It then came up in Congress during the pandemic in 2020… when money was spent with abandon to keep our economy and communities afloat.

Proponents say if the Treasury were to mint a single trillion-dollar platinum coin to pay off our debt… poof! Our problems would be over.

Except they’d really just be starting.

Creating a coin from nothing and giving it a trillion-dollar value would explode our money supply. Researchers say it would also reignite inflation… and send interest rates sky-high.

Again.

And it would send the dollar’s value plummeting even further.

While Treasury Secretary Janet Yellen is calling the coin a gimmick (for now)…

Business Insider hails it as fast, legal and no bigger than a regular coin.

Economist (we use that term loosely) Paul Krugman says – contrary to all common sense – that a coin would not cause inflation.

His exact words…

People who really should know better constantly get this wrong, and imagine that the coin would be inflationary.

Imagine? Someone hasn’t been paying attention these past few years…

But we digress…

Legal scholar Rohan Grey of the Willamette University College of Law says that the idea is less crazy than allowing the United States to default. “At least the option of a catastrophic cliff has been taken off the table,” Grey said.

Sure… but what about the inflation catastrophe that would immediately follow?

And then there’s this pièce de résistance…

The bright minds on Twitter are raising awareness of this critical issue with the hashtag #MintTheCoin. It’s been promoted by Bloomberg editor Joe Weisenthal, Krugman and Grey.

Clearly they’re hoping it’ll go viral… and build more support for a costly idea that’s simply ridiculous.

And with the current debt ceiling debacle, Washington has already done a fine job of making itself look ridiculous.