US debates minting US$1tr coin to help pay off its debt
Platinum coin and constitutional change mooted as showdown nears in dispute over debt ceiling
The looming showdown between President Barack Obama and congressional Republicans over raising the US$16.4 trillion US federal debt limit has made alternatives - including minting a trillion-dollar coin or invoking a constitutional amendment to pay the bills - part of the political debate.
So far, the Obama administration is not participating.
The proposal for the Treasury Department to mint a platinum coin worth US$1 trillion and deposit it at the Federal Reserve to give the US enough money to pay its debts has been advanced by Representative Jerrold Nadler, a New York Democrat, and Nobel laureate Paul Krugman.
Representative Greg Walden, an Oregon Republican, said on Monday he would introduce legislation to block such a move.
The ideas underscore growing unease in Washington as the US reaches the debt limit and Obama and the Republicans move closer to a confrontation over increasing it. Republicans are demanding spending cuts in exchange for raising the limit, while Obama says he will not negotiate on the issue. Treasury Secretary Timothy Geithner took extraordinary measures on December 31 when the US was a mere US$25 million below the ceiling, to avoid breaking through it.
"A trillion-dollar currency is ridiculous," said Chris Krueger, a policy analyst at Guggenheim Securities LLC in Washington. "This is not something that a first-rate power should even consider."
A research note from Krueger last week helped spur interest in the idea by mentioning such coins as a "theoretical" option, while calling it "very low probability". An online petition to the White House requesting the coin got more than 6,800 signatures.
Proponents say 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 the Treasury secretary may "mint and issue platinum coins in such quantity and of such variety as the secretary determines to be appropriate."
Krugman wrote in his New York Times blog on Monday that Obama should be willing to mint a US$1 trillion coin "if Republicans try to force America into default". 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", Krugman wrote. "The decision should be obvious."
Nadler spokesman Ilan Kayatsky said on Tuesday the congressman "has endorsed the idea, but only as a last resort if all else fails". Nadler "also has endorsed the 14th Amendment and has introduced a bill to repeal the debt ceiling in the same spirit", Kayatsky said in an e-mail.
The Constitution's 14th Amendment says 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 to get around the debt limit.
"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 earlier this week.
The Treasury would run out of funds to pay its bills between February 15 and March 1, the Washington-based Bipartisan Policy Centre said yesterday.
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 now a partner at Qorvis Communications in Washington.
"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," Collender said.