Minting the Coin: A Debt-Ceiling Panacea or a Trillion-Dollar Boondoggle?

By Joseph Brugellis, Legal Reporter
Photo: one design for the trillion-dollar coin by artist DonkeyHotey

A sovereign state possesses a national deficit when the amount of government spending in a given fiscal year exceeds that which the state collects through revenue-generating mechanisms like income taxes. Since the end of fiscal year (FY) 2001, the United States Federal Government has consistently run a deficit that has recently grown to $1.38 trillion (“What is the National Deficit?”). To make up this deficit gap, The US Treasury Department borrows money by issuing securities to investors; the amount of money borrowed combined with any interest owed on these securities comprises the national debt (“What is the National Debt?”). 

While national debt has been held by the US since the Founding Era, the process by which such debt is accumulated has undergone significant changes. For most of the country’s history, Congress assumed the role of issuing bonds and other securities to finance a specific project or purpose (DeSilver 2023). As an example, Congress directly issued three different types of fifty-year bonds to help finance the construction of the Panama Canal at the turn of the 20th century (“The Panama Canal Loan”). The role of Congress in this borrowing process shifted dramatically during WWI. To fund all necessary wartime provisions, Congress needed to borrow unprecedented sums of money. As the management of the Nation’s finances became increasingly complex, Congress passed the Second Liberty Bond Act of 1917, giving the Treasury Department wide discretion to borrow money as necessary (“The Debt Limit Through the Years”). 

In 1939, Congress imposed the first cap on the maximum amount of money the Treasury may borrow to pay bills and finance its obligations (“The Debt Limit Through the Years”). Known as the debt ceiling, this maximum limit prevents the government from further accruing debt once X dollars has been reached, even though this debt accumulation is critical to funding statutorily mandated programs and paying the country’s bills (“What is the National Debt?”). Since 1960, Congress has voted to raise the debt ceiling a total of 78 times under both Democratic and Republican administrations (Neuman et al. 2023). While this had long been considered a routine procedure, raising the debt ceiling in recent years has embroiled both Congress and the President in a game of political brinkmanship over larger disputes on issues like deficit spending.  

Perhaps the most infamous historical example of a debt ceiling brawl occurred during the Obama administration. After the 2010 midterm elections ushered in a wave of populist so-called “Tea Party” Republicans who advocated for a significant reduction in the size of the federal government, a new Republican majority in the House of Representatives sought to flex its newfound influence over policy matters. In January 2011, Treasury Secretary Timothy Geithner called on Congress to increase the debt ceiling before the Treasury Department would be forced to take “extraordinary measures” to avoid a debt default on May 16 of that year (“Timeline of 2011 Debt Ceiling Crisis”). House Republicans in March announced their refusal to raise the debt ceiling unless a budget plan to fund the government contained certain unnamed provisions designed to control long-term spending. After much jockeying that saw the defeat of both President Obama and House Republicans’ respective deficit reduction proposals, Geithner was forced on May 16 to deploy certain “extraordinary measures” to allow the federal government to pay its bills until August 2. On July 31, two days before this absolute deadline, House Republicans agreed to raise the debt ceiling in exchange for a complex web of deficit reduction measures. The 2011 debt ceiling crisis roiled financial markets and even led to a downgrade in the US credit rating for the first time (Neuman et al. 2023). 

Today, Congress is seemingly gearing up for another debt ceiling clash that is eerily similar to the 2011 showdown. Shortly after a new Republican House majority was inaugurated at the beginning of this year, current Treasury Secretary Janet Yellen notified Speaker Kevin McCarthy of the Treasury Department’s intention to deploy extraordinary measures beginning on January 19 to temporarily preserve the ability of the US to continue paying its bills (Yellen 2023). The Republican-controlled House, however, refuses to pass a clean debt ceiling increase advocated for by President Biden. Instead, Republicans are hoping to extract concessions from the administration on overall budgetary spending cuts (Skelley 2023). Once again, financial markets and investors around the world are relegated to watching from the sidelines as another potentially calamitous debt ceiling fight unfurls. 

But what if there was an alternative route to preserve the public credit of the US from the whims of politically self-interested lawmakers? For years, many economic thinkers and policymakers have advocated for solutions that would preserve the ability of the Treasury to borrow money to pay its bills while Congress simultaneously negotiates with the President over a debt ceiling deal. 

One such unorthodox proposal involves the Treasury minting a trillion-dollar platinum coin and depositing it with the Federal Reserve (Rappeport 2023). Since the Federal Reserve acts as the manager of the Treasury Department’s “general account,” minting a trillion-dollar platinum coin would be the equivalent of adding one trillion disposable dollars that the Treasury Secretary may utilize to continue paying the country’s bills until Congress and the President reach a deal (Rappeport 2023). If the Treasury runs through the trillion dollars before such a deal is reached, then the Department could just mint another trillion-dollar coin and deposit it with the Federal Reserve (Rappeport 2023). 

At first glance, the successful minting of a trillion-dollar coin rests upon a variety of assumptions. First, this proposal assumes that the ability of the Treasury to honor the government’s obligations outweighs the possible negative consequences of its implementation. Minting a trillion-dollar coin would essentially be tantamount to creating a trillion dollars of new currency “out of thin air” (Bogage 2021). Even though the Treasury would utilize this currency for the sole purpose of paying government bills, this new injection of cash into the overall economic scheme may still threaten to devalue existing money and significantly add to current inflationary pressures (Bogage 2021). Furthermore, it is unclear whether financial markets would react positively to such a policy. Even though the government is still technically honoring its financial obligation to investors by paying its bills, minting a trillion-dollar coin to do so represents an untested measure that would drive worry and angst in the worldwide market.    

Second, proponents of this proposal assume that minting the coin comports with statutory law. Congress passed a law in 1997 allowing for the Treasury Secretary to “mint and issue platinum bullion coins with such specifications” as the Secretary sees fit (31 U.S.C § 5112(k)). The theory goes that this law empowers the Treasury to mint a trillion-dollar platinum coin to pay its bills. However, this statute read most naturally merely empowers the Treasury to mint platinum bullion coins for investment or collectible purposes. Other provisions of 31 U.S.C. § 5112 surrounding subsection (k), for example, specifically empower the Treasury to issue commemorative coins and coins used for currency purposes. The Constitution tasks Congress with the specific authority to coin money (U.S. Const. art. I, §8), and nowhere in this coinage statute does Congress independently authorize the Treasury to deposit a newly minted trillion-dollar coin to pay government bills. 

Finally, even if such an action were legal, the successful minting of a trillion-dollar coin assumes that the Federal Reserve would be a willing partner in such an adventure. Treasury Secretary Janet Yellen has voiced her position that minting the coin would encroach upon the independence of the Federal Reserve by enlisting the Reserve as a personal policy player in the executive branch’s effort to circumvent congressional action on the debt ceiling (Rappeport 2023). Noting how there exists no independent requirement for the Federal Reserve to accept the trillion dollar deposit, Secretary Yellen believed that the Reserve would decline to participate in such a “gimmick” (Rappeport 2023).   

Many Americans share in the frustration over our political branches’ affinity for brinkmanship games over the federal debt ceiling which threaten to usher in worldwide economic panic. Therefore, it is understandable that some policymakers have proposed minting the coin as an innovative solution to bypass this political turmoil and ensure that the federal government continues to meet its financial obligations. Not all remedies are panaceas, however, and those in favor of minting the coin should consider whether it truly represents a better alternative to solving a debt ceiling crisis. 

References

Bogage, Jacob. 2021. “The Trillion-Dollar Coin: Is it a Solution to the Debt Ceiling Drama — or a Gimmick?” The Seattle Times, October 5. https://www.seattletimes.com/nation-world/nation-politics/the-trillion-dollar-coin-is-it-a-solution-to-the-debt-ceiling-drama-or-a-gimmick/.

“The Debt Limit Through the Years.” Bipartisan Policy Center. https://bipartisanpolicy.org/debt-limit-through-the-years/.

DeSilver, Drew. 2023. “5 facts about the U.S. National Debt.” Pew Research Center, February 14. https://www.pewresearch.org/fact-tank/2023/02/14/facts-about-the-us-national-debt/.

Neuman, Scott et al. 2023. “The Fight Over the Debt Ceiling Could Sink the Economy. This is How We Got Here.” National Public Radio, March 23. https://www.npr.org/2023/03/23/1163448930/what-is-the-debt-ceiling-explanation.

“The Panama Canal Loan.” The Herbstman Memorial Collection of American Finance. https://www.theherbstmancollection.com/panama-canal-loan.

Rappeport, Alan. 2023. “The Trillion-Dollar Question: Could a Coin Save the Day?” The New York Times, February 2. https://www.nytimes.com/2023/02/02/business/trillion-dollar-coin-debt-ceiling.html.

Skelley, Geoffrey. 2023. “How This Debt Ceiling Debate Could End.” FiveThirtyEight, February 14. https://fivethirtyeight.com/features/2-ways-this-debt-ceiling-debate-ends/.

“Timeline of 2011 Debt Ceiling Crisis”. 2011. CNNPolitics, August 2. https://www.cnn.com/2011/POLITICS/07/25/debt.talks.timeline/index.html.

“What is the National Debt?” FiscalData—U.S. Treasury Department. https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/#the-debt-ceiling.

“What is the National Deficit?” FiscalData—U.S. Treasury Department. https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/#the-difference-between-the-national-deficit-and-the-national-debt.

Yellen, Janet. 2023. “Letter to the Speaker.” U.S. Treasury Department, January 13. https://home.treasury.gov/system/files/136/Debt-Limit-Letter-to-Congress-McCarthy-20230113.pdf.