Ever since Obama said he wouldn’t negotiate over the debt ceiling, talk of the trillion-dollar coin has heated up. On Wednesday, White House spokesman Jay Carney declined to dismiss the ploy as an option, furthering the economic joke that isn’t a joke.
What is the trillion-dollar coin? It’s a technicality that could save Obama from having to cajole Congress into raising the debt ceiling, which must happen in March if the federal government is to pay its bills.
The basic idea is that Congress controls the purse strings and the Federal Reserve controls the printing of paper money, but the president retains the right to mint coins through the U.S. Treasury.
So, if Congress won’t cough up the dough, Obama needs only to crank out a trillion-dollar coin or two, also dubbed a platinum coin or a jumbo coin, deposit it at the Fed, and presto! The reserves are in place and he can write checks against the asset.
Constitutional scholars say the idea is sound, sort of — coins of this nature are meant to be commemorative but that rule is not explicit. Some experts believe Obama would be in constitutional violation either way, if he couldn’t reach a deal with Congress and failed to spend money that was already allocated.
Naturally, we want to know whose face would adorn the coin — and there’s no shortage of suggestions, from Obama (our pick) to Paul Krugman to Charles Ponzi, as one coin designer told Marketplace radio.
Jack Balkin, the Knight Professor at Yale Law School, wrote that Obama actually has a handful of ways to get around Congress on the debt limit, including selling land options to the Fed for $1 trillion and letting them expire.
And Greg Ip, economics blogger for the Economist, showed why the transaction works without expanding the money supply and risking inflation.
As March approaches, this bit of silliness will grow less and less silly. Krugman explains it best in the New York Times: It’s an artifice that allows for business as usual. It is, as he says, undignified but at least it would avoid economic disaster.