U.S. Default on Debt? Mint a $1 Trillion Coin
U.S. Default on Debt? Mint a $1 Trillion Coin
This debt ceiling debacle is headed towards cataclysmic implications, but there happens to be a solution as simple as dropping a quarter in a gumball machine.
Amid a brimming week of work in the nation's capital headlined by the descending bills that would make up the president's legacy, the debt ceiling debacle is headed towards cataclysmic implications. Even with the potential for financial hell, there happens to be a solution as simple as dropping a quarter in a gumball machine.
Yesterday in this space there was an examination of what seems like the setup for a bad joke. The bipartisan infrastructure bill, the budget reconciliation package, a potential shutdown, and a debt ceiling catastrophe in the making all seemed to walk in at the same time.
To start, the budget reconciliation, as noted in yesterday's piece, is not only in danger of being hacked up or killed altogether at the hands of corporate lapdogs Joe Manchin and Kyrsten Sinema, but also because Biden has stayed almost entirely out of the process and Pelosi busted the whole deal by basically setting up, to her and everyone's knowledge, for the decoupling of the two bills which was not only agreed upon but crucial to its ability to pass.
Unfortunately, the ending to the reconciliation story is set to be very much like the ending to a Hemingway novel in that sadness is given no resolution and things just end by going on as usual in the despondency of life's mundane continuation. Welcome to Washington.
However, to the credit of those who vowed to hold the line, Bernie Sanders and the progressives could sink the bipartisan bill and lead to a reset. In the end, that could just be a pathway to a slashed and shrunken version of the reconciliation package, but it shows commitment to Americans in their support for a package that proposes transformational change by threatening the bare minimum bipartisan hard infrastructure bill.
Though those two items play essential roles in creating the buzz in this busy week in D.C., a potential financial disaster with an additional set of steep implications for ordinary people in the U.S. and around the world is in danger of occurring in the coming weeks.
October 18 is the estimated "X date," as it's called, for when the U.S. will default on its debts if the debt ceiling is not raised or suspended.
With the reconciliation process on the verge of blowing up, there was the potential for a government shutdown.
Senate Republicans struck down a continuing resolution, also known as a stopgap funding bill, this week, but the reason wasn't because they are eager for a government shutdown to happen. It may actually be more severe than that with McConnell and the GOP explicitly saying they are not interested in lending a hand to Democrats in containing the potential default disaster. That was the reason they went against this recent stopgap bill, even as Republicans suspended the debt ceiling under Trump.
So some kind of continuing resolution void of a debt ceiling raise or suspension is very likely to pass before the midnight deadline on Thursday. But what about that menacing default situation?
Well, after striking down the bill, McConnell suggested Democrats try to get the debt ceiling raised or suspended in the reconciliation process. Senate Majority Leader Chuck Schumer called that a nonstarter with the reasoning that that solution's process would take too much time to achieve, setting up for a countdown to tragedy for everyday people.
Pelosi and the House passed a bill to suspend the debt ceiling until December 2022, but as McConnell said, that will be dead on arrival in the Senate.
For clarity, let's recap so far. The reconciliation bill: likely dead. The bipartisan bill: not at all guaranteed to pass. The government shutdown: almost certainly won't happen. The debt ceiling: all question marks.
Well, it's question marks from some and a simple solution for others.
This simple solution is the plan for the Treasury Department to mint a $1 trillion coin to deposit which would subsequently be used to purchase debt from the Federal Reserve, retire the debt, and—voila—there's no debt ceiling crisis and U.S. default.
It's a solution that's gained some momentum over the last day and has highlighted the cartoonish things this nation's system can pull from its pocket at any moment. But for however much it sounds like a joke or too good to be true, it is a surefire and legally airtight solution to what could be a financial calamity. And with Biden unwilling to reform the filibuster regarding the debt ceiling, it is the last resort.
If the U.S. defaults on its debts, not only would it spell out an almost immediate recession, it would prevent Social Security payments, Medicare reimbursements, tax refunds, and the payment of military personnel salaries, it would cause interest rates and import prices to soar, and the U.S. dollar would be beaten to a pulp.
There has already been support for the $1 trillion coin from some House Democrats. Rep. Jerry Nadler (NY) and Rep. Rashida Tlaib (MI) both have a history of a solution of minting the coin.
Bloomberg writer Joe Weisenthal wrote a clarifying newsletter piece featuring a list of frequently asked questions and his answers.
Of the FAQ, an important question asked whether this move would cause or inflation, an already pressing issue. "No," Weisenberg wrote simply. He went on to explain that this minting and deposit would be "an asset swap between two arms of the government (the Treasury and the Fed)" so there would be "no new money entering the economy."
Our leaders can't seem to do much right, and that's been glaringly apparent this week, but there's an easy win all teed up for them at this point and it's really simple: mint the coin.
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