Showdown on debt limit sparks debate on trillion-dollar coin

President unlikely to mint currency or use 14th Amendment

Jan 13, 2013 @ 12:01 am

By Bloomberg News

The looming showdown between President Barack Obama and congressional Republicans over raising the $16.4 trillion federal debt limit has made alternatives such as minting a trillion-dollar coin or invoking a constitutional amendment to pay the bills part of the political debate.

So far, the Obama administration isn't participating.

The proposal for the Treasury Department to mint a platinum coin worth $1 trillion and deposit it at the Federal Reserve to give the U.S. enough money to pay its debts has been advanced by, among others, Rep. Jerrold Nadler, D-N.Y., and the economist, Nobel laureate and New York Times columnist Paul Krugman.

But Rep. Greg Walden, R-Ore., said that he would introduce legislation to block any such move.

The ideas underscore growing unease in Washington as the United States reaches the debt limit and Mr. Obama and the Republicans move closer to a confrontation over increasing it.

OBAMA WON'T NEGOTIATE

Republicans are demanding spending cuts in exchange for raising the limit, while the president insists that he won't negotiate on the issue.

“A trillion-dollar currency is ridiculous,” said Chris Krueger, a senior policy analyst at Guggenheim Securities LLC. “This is not something that a first-rate power should even consider.”

Mr. Krueger's Dec. 5 research note helped spur interest in the idea by mentioning such coins as a “theoretical” option, while calling it “very low probability.”

Proponents contend that the Commemorative Coin Authorization and Reform Act of 1995 allows the government to issue a platinum coin in any denomination it chooses.

The law says that the Treasury secretary is authorized to “mint and issue platinum coins in such quantity and of such variety as the secretary determines to be appropriate.”

Treasury spokes-man Matthew Anderson declined to comment on the coin proposal.

Mr. Krugman wrote in his New York Times blog that Mr. Obama should be willing to mint a $1 trillion coin “if Republicans try to force America into default.”

Mr. Obama will “be faced with a choice between two alternatives: one that's silly but benign, the other that's equally silly but both vile and disastrous,” he wrote.

“The decision should be obvious,” Mr. Krugman wrote.

PAY THE BILLS

The Treasury will run out of funds to pay its bills between Feb. 15 and March 1, the Bipartisan Policy Center wrote in a report last Monday.

The Constitution's 14th Amendment says that the validity of the public debt of the United States “shall not be questioned.”

The White House has dismissed the idea of invoking the amendment.

“This administration does not believe that the 14th Amendment gives the president the power to ignore the debt ceiling, period,” White House press secretary Jay Carney told reporters Dec. 6.

The Obama administration's “overwhelming preference” would be to avoid invoking the 14th Amendment or minting a coin, said Stan Collender, a former aide to the House and Senate budget committees who is a partner at Qorvis Communications LLC. “But faced with an alternative of spending cuts they don't think are wise or would be harmful to the economy, and Republicans refusing to raise the debt ceiling, if pushed into that kind of situation, I think the president might very well do it.”

Standard & Poor's lowered the U.S. credit rating in August 2011 after months of debate between Mr. Obama and congressional Republicans over raising the limit. Although the impasse ended and the president signed a debt ceiling increase, S&P downgraded the U.S. credit, citing political gridlock in Washington and long-term fiscal challenges.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

Ric Edelman: 3 factors transforming the financial advisory industry

We are at the "knee in the curve" of a transformation of the financial advice industry, according to Ric Edelman. But what's next and how will it shape your practice of the future?

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Why private equity wants a piece of the RIA market

Several factors, including consolidation in the independent advice industry and PE's own growing mountain of cash, are fueling the zeal to invest.

Finra bars former UBS rep for private securities transactions

Regulator says Kenneth Tyrrell engaged in undisclosed trades worth $13 million.

Stripped of fat commissions, nontraded REIT sales tank

The "income, diversify and interest rate" pitch was never the main draw for brokers.

Morgan Stanley fires former Congressman Harold Ford for misconduct

Allegations against the wirehouse's former managing director include sexual harassment, which Ford denies.

Senate tax bill changes for pass-throughs more generous than House version, experts say

Senate measure's handling of such small-business income is simpler and makes allowances for more service companies.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print