Going for Broke: Could 'Gimmicky' Trillion-Dollar Coin Save America From Debtpocalypse?
18:16 GMT 06.10.2021 (Updated: 18:51 GMT 06.10.2021)
The showdown between Democrats and Republicans over the debt ceiling shows no signs of abating, with neither side willing to back down in spite of an 18 October deadline by which time the Treasury expects the US to run out of money. Amid the chaos, officials have explored the idea of minting a trillion-dollar coin to stop the US from going broke.
Last week, officials told The Washington Post that the White House has been exploring the possibility of staving off defaulting on America’s gargantuan $28+ trillion in debt even if Congress fails to agree on the debt ceiling by taking advantage of a legal loophole that allows the Treasury to mint platinum coins in any denomination it likes. The sum involved? One trillion dollars.
Treasury chief Janet Yellen dismissed the idea as a “gimmick” on Tuesday, telling CNBC that the minting of a trillion-dollar coin would be “equivalent to asking the Federal Reserve to print money to cover deficits that Congress is unwilling to cover by issuing debt.” In Yellen’s professional opinion, the idea “compromises the independence of the Fed, conflating monetary and fiscal policy.”
However, former United States Mint director Philip Diehl has assured Axios that legally speaking, the coin could be created “within hours” if Yellen signed off on the idea.
Everything Old is New Again
The concept of issuing a $1 trillion coin is not a new invention, and was first floated in 2011, when the US was facing another debt ceiling crisis, back when America’s debt stood at "just" $14.7 trillion, roughly half of what it is today. The Obama White House looked into the idea but ultimately rejected it in 2013 after both the Federal Reserve and Treasury deemed it unfeasible.
The idea behind the coin is simple and based on the US government’s propensity to spend significantly more than it collects in revenue on programmes ranging from Medicare and Medicaid to pensions and government services, to the US’s annual $700 billion+ defence budget to maintain Washington’s global empire.
In theory, the president could order the Treasury to mint the coin, after which it would be deposited in the Federal Reserve and presto – the US government would get another trillion dollars to spend and the debt crisis would be temporarily averted.
Nothing is Free
While creating the coin might be tempting due to its perceived ability to forestall a global economic crisis, some economists fear that one major possible downside may be hyperinflation, since, as any economics 101 textbook will tell you, increasing the amount of money circulating in an economy without raising the amount of goods produced inevitably leads to a rise in prices on said goods.
Up to this point, thanks to the dollar’s status as the de facto world reserve currency, the United States has faced faced fewer inflationary penalties that most other major economies would by printing large quantities of paper money not tied to actual goods.
Nevertheless, American consumers have felt the pinch of inflation gradually eating away at real wages over the decades, with $1 dollar in 1944, the year the Bretton Woods financial system was created, worth over $15.50 today. And while prices for goods, salaries, taxes, and other things have risen to accompany the shrinking real value of the dollar, such growth has not been commensurate with the actual inflation rate. This is one of the myriad of reasons why the average wage earner in the United States in the early post-war period and through the 1950s and 1960s could afford to buy a home and car on a single salary, but can longer afford to do so today.
In addition to causing inflation at home, the minting of the coin could have an impact on the US’ reputation abroad, particularly among credit agencies and holders of US Treasury obligations. In her interview with CNBC, Treasury Secretary Yellen warned that a default on America’s obligations would have a “catastrophic” impact on US Treasury bills’ status as “the safest asset on the planet.”
If Washington were to go around creating new trillions of dollars in new money out of thin air, global confidence already shaken by the America’s massive pile of debt, combined with antagonisms created by US sanctions policies against competitor economies, may very well reach a breaking point.
How Would a Trillion Dollar Coin Even Look?
Media outlets and internet users have had a field day speculating on what a trillion dollar coin might actually look like.
But the reality is that the coin’s physical appearance doesn’t really matter, since it wouldn’t circulate – instead it would be immediately deposited into the Federal Reserve after being minted.