The $1 trillion coin.
It sounds like the title of a film or a novel.
It is, however, a political/economic theory that some maintain could provide a plan B for US authorities if a deal cannot be struck between the White House and Republicans in the House of Representatives to allow the United States to raise its legal debt limit so as to pay its bills.
Others say the idea is completely unrealistic and that the genesis of the concept may not have come from Wall Street or the academic halls of some Ivy League university, but from the plot of a 1998 episode of The Simpsons.
The new focus on the $1 trillion coin comes as the US treasury is currently juggling money as part of a programme of “extraordinary measures” introduced last month after the country reached its legal $31.4 trillion maximum debt limit.
The US needs to borrow to meet its commitments and if a deal is not agreed by June to either raise the debt ceiling or suspend the limit, the government would be unable to pay its bills. There are fears such a development would lead to financial instability around the world and economic turmoil domestically.
Republicans, who now have a majority in the House, want to use the debt ceiling as leverage to secure concessions, particularly a reduction in federal government spending.
The White House insists it will not negotiate and wants Congress to simply raise the official limit. It has accused Republicans of wanting to cut key social and medical programmes.
US president Joe Biden and the new Republican House speaker Kevin McCarthy held talks on the issue for the first time on Wednesday. Both appeared positive afterwards and said they had had “a good discussion”.
However, this is likely to be just the start of a process that could run for weeks. And, given the fractious nature of the Republican Party and its internal divisions on where any spending cuts should fall, it remains to be seen whether an agreement can be reached in time before the government’s money runs out.
[ New talks process likely to try to reach deal on US debt limit but clock is ticking ]
This is where the concept of the $1 trillion coin comes in.
Supporters point to legislation from the 1990s which allows the treasury secretary to mint platinum coins of any value.
The say treasury secretary Janet Yellen could direct the US Mint to produce a platinum coin valued at $1 trillion and deposit it with the Federal Reserve, the government’s banker.
They argue the US government could then use this money to pay its bills until a formal agreement was reached on the official debt ceiling.
While the episode of The Simpsons did deal with a $1 trillion note which, the fictional plot maintained, was secretly printed by president Harry Truman after the second World War and for various nefarious reasons ended up in the hands of Fidel Castro, the more recent idea behind the plan goes back to a debt ceiling crisis of the Obama years.
Just like Biden, Barack Obama also had to struggle with Republicans in the House who were opposed to raising the debt ceiling – leading to the country’s first credit rating downgrade in 2011.
Given the current political standoff and the warnings of economic catastrophe in the event of a US debt default, the idea of using the $1 trillion coin has had something of a renaissance in the US media in recent weeks.
However, among the key opponents of such a move is Yellen, who in a previous life served as chair of the Federal Reserve.
She told the Wall Street Journal last month that the whole concept was something of a “gimmick”.
“It truly is not by any means to be taken as a given that the Fed would do it. The Fed is not required to accept it, there’s no requirement on the part of the Fed.”
The White House has also indicated that it is not planning to do anything to bypass Congress, which it believes should address the debt ceiling issue.
Other critics see possible unintended consequences in the $1 trillion coin concept.
They see the potential economic downsides of failing to increase the borrowing limits as so catastrophic that they will ultimately force politicians to make a deal of some sort – as they have always in the past.
They fear if there was a possible easy way out in the form of a $1 trillion coin, it might make it less likely that there would be a debt ceiling agreement and raise the possibility of the country falling into an economic crisis, even by accident.
