Joe Biden and the Crazy Idea of a $1 Trillion Coin To End the US Debt Ceiling Problem

Some see this as a solution to this recurring psychodrama.

America is repeatedly faced with the same debt ceiling psychodrama. America is indeed under a legislative limit on the amount of national debt that can be incurred by the U.S. Treasury. This limits how much money the federal government can pay on the debt already borrowed.

The U.S. government regularly hits the ceiling on this debt.

To continue to function properly, an agreement must be reached with Congress to raise the debt ceiling. This usually leads to a big showdown in Congress between Democrats and Republicans, which in some cases can lead to a partial shutdown of the US administration.

In the end, an agreement is always reached, because it cannot be otherwise, since the current system is built on infinite debt.

The trillion-dollar coin is seen as the ultimate weapon against the recurring psychodrama of the US debt ceiling

Nevertheless, this recurring psychodrama has gone on too long for some. In 2011, an anonymous lawyer from the state of Georgia came up with an amazing idea that could solve this problem that regularly threatens to paralyze America once and for all.

The idea is to mint a $1 trillion coin to be paid to the Fed by the US government. The amazing thing here is that this is possible under the law.

Proponents of this idea suggest that a law passed in 1997 could be used to do this. This law theoretically allows the US Treasury Secretary to have a coin of any denomination, made of platinum, minted.

The Treasury Secretary, presumably on the instructions of President Joe Biden, could create a $1 trillion coin, which would then be deposited in the Fed's account to pay off an equivalent portion of the US debt.

This would put the US government well below the debt ceiling and give it the flexibility it needs, without having to ask for Congressional approval, which is what it normally has to do.

For many, minting such a trillion-dollar coin would not be commensurate with the world's leading economic power

However, this idea is considered by most to be fanciful and even legally impossible to implement in practice. Nevertheless, the concept has gained ground, to the point that in 2013, the US Treasury took the trouble to say that it would not mint the coin.

In January 2017, just days before the end of his term, President Barack Obama took the time to discuss the idea with Jack Lew, the then Secretary of the Treasury. The idea was eventually dismissed.

Few economists have given credence to this theoretical construction, among them the American Nobel Prize winner Paul Krugman, in March 2020, who presented it as an “accounting trick” that would “simply allow the Treasury to get past the blackmail of the Republicans”.

For Boston University economics professor Laurence Kotlikoff, it is an absurd and dishonorable idea for America:

“This is the kind of thinking you see in a developing country.”

Minting such a coin would have potentially disastrous consequences for inflation

Minting such a trillion-dollar coin would also have an impact on inflation, as Laurence Kotlikoff points out:

“The heart of the matter is to issue money to pay the government's bills. And when you print enough money, you generate inflation.”

However, after more than twenty years of low price increases, inflation has already returned to the American economy, thanks to the emergence of the COVID-19 pandemic.

Republicans, who are currently again opposing an increase in the debt ceiling, believe that this would be tantamount to validating the massive investment plans of the Biden administration, which they consider “irresponsible”. The threat of default, the first in US history, is becoming a real fear in the minds of some.

Rather than a $1 trillion coin, the solution would be to look to the legislative side by removing the debt ceiling in America

In this context, the trillion-dollar coin, which is the subject of so many fantasies, is back in the spotlight. More and more people are talking about it, especially on social networks.

Nancy Pelosi, the Democratic leader of the House of Representatives, recently revealed that New York Congressman Jerry Nadler had suggested the “trillion-dollar coin” as one of the possible solutions to avoid new debt battles in Congress in the future.

From the point of view of the co-creator of the Modern Monetary Theory, L. Randall Wray, this famous coin is no more far-fetched an idea than the massive support to the economy that the Fed has put in place since the beginning of the pandemic, by buying hundreds of billions of dollars of public and private debt on the financial markets since March 2020.

For L. Randall Wray, the trillion-dollar coin is “a workaround” that “highlights that the debt ceiling is itself a stupid idea”.

Rather than regularly pushing the trillion-dollar coin idea, a growing number of economists, including L. Randall Wray, are pointing out that it is time to blow up the debt ceiling.

To those who worry about the possible effects on inflation, these economists retort that the huge injections of liquidity by the Fed into the financial system since 2018 have had no effect and that this specter is therefore not a specter.

Final Thoughts

The temptation of Joe Biden minting the trillion-dollar coin to unblock the current situation should therefore once again remain a dead-end idea.

However, it does bring to the forefront the value of ending this political show that we are regularly treated to and that is proving to be useless. Indeed, we all know very well that an agreement will eventually be found and that the country will not default.

What is the point of maintaining this illusion and leaving millions of Americans in fear? Rather than constantly giving in to the political strategy, American politicians would do well to return to the original meaning of their mission: to serve the interests of Americans and America.