The Magic Coin and Nine Other Crazy Debt-Ceiling PloysBy
There are at least nine ways the U.S. can avoid crashing into the debt ceiling besides the one everybody’s talking about lately, namely minting a trillion-dollar platinum coin. Not necessarily nine better ways, to be sure. The coin gambit, rich in numismatic strangeness, deserves every bit of hype it’s getting. It could probably feature in a sequel to Nicolas Cage’s National Treasure franchise. White House spokesman Jay Carney refused to rule out a trillion-dollar coin in a press briefing Jan. 9, keeping the blogosphere buzzing.
But if for some reason the trillion-dollar coin idea doesn’t pan out—say, because the U.S. Mint can’t find a way to squeeze 12 zeros into such a small space—there are lots of alternatives that range from intriguing to bonkers. Here we go:
Not one coin, but many. A trillion-dollar coin is so valuable that only the Federal Reserve could conceivably buy it from the Treasury Department. But let’s say the government mints a whole bunch of $50 million coins. Say, 20,000 of them, which would add up to a trillion dollars. Greg Ip of the Economist says Yale University economist Gary Gorton has bruited this idea about. Treasury could sell the coins to chief financial officers of companies that want “a risk-free, liquid way to store cash with no risk of negative yields,” writes Ip. The coins would probably be kept in a vault at the Fed, Ip says, because “if the CFO lost one down a sewer grate, it would be a disaster.”
The “exploding option.” The government sells the Federal Reserve an option to purchase government property for $1 trillion or so. The Fed would credit the money to the government’s account. This is a close cousin to the coin idea, except involving real property and using an option that would expire, or “explode,” after Congress got around to raising the debt ceiling. Jack Walsh, a constitutional scholar at Yale Law School, floated this one in a piece for CNN Opinion. (What is it with these Yale professors, anyway?)
Pay expenses with IOUs. The federal government could pay IOUs (“scrip”) instead of cash to “federal employees, defense contractors, Medicare service providers, Social Security recipients and others,” University of Southern California law professor Edward Kleinbard wrote in a Jan. 10 op-ed in the New York Times. That would save precious dollars for interest payments on the debt. Banks could buy the scrip from holders for cash, though presumably less than 100 cents on the dollar. One small problem: This is illegal under the federal Anti-Assignment Act. But Kleinbard is confident that the president “could waive the act’s application.” As Richard Nixon once said: “When the president does it, that means that it is not illegal.”
The 14th Amendment to the rescue. The people who pushed this strategy in the last debt-ceiling go-round in 2011 are back. This famous amendment, ratified in 1868, guarantees due process and equal protection. But it’s the little-known Section 4 that has hearts aflutter. It says, “The validity of the public debt … shall not be questioned.” Actually, University of Chicago Law School professor Eric Posner thinks Obama doesn’t even need the 14th Amendment. He just has to show that he has the constitutional responsibility to choose when Congress gives him “contradictory instructions”: Spend X and tax Y, but don’t borrow when X>Y. Conjuring President Teddy Roosevelt in Slate, Posner writes that the president “should not twiddle his thumbs waiting for lawmakers to get their act together.” Argues the prof: “Now it is time for him to wield the big stick and raise the debt ceiling on his own.” Hello, Chief Justice Roberts!
Sell the gold. The U.S. has 5,000 tons of gold in Fort Knox. That should cover expenses for a while. The good thing about gold is that it’s “liquid”—there’s a ready market for it. Same with mortgage-backed securities and student loans. Treasury hates the idea. “A family that is struggling to make its monthly mortgage payment could try to sell all of its possessions within a week at a garage sale or on the Internet,” but when the next payment rolled around, “all of its possessions would be gone,” the department warns. Bummer.
Liquidate Lady Liberty. Even if liquid assets like gold run out, think of all the illiquid assets the federal government owns and underutilizes. Imagine display advertising on Yosemite National Park’s Half Dome, or Lady Liberty dressed in the latest from Ralph Lauren or Balenciaga. The Heritage Foundation’s Saving the Dream plan (PDF) is modest by comparison with these visions: asset sales of “approximately $260 billion over 15 years,” including “real estate, mineral rights, the electromagnetic spectrum, and energy-generation facilities.”
Copy Greece. The Greeks “restructured” their debt last year. That’s the nice way to put it. The not-nice way is that they crammed a partial default down the throats of their creditors. Memo to Jack Lew: You don’t hit the debt ceiling if you don’t owe the money anymore.
Jubilee! The world’s poorest countries don’t even have to negotiate debt forgiveness. Their plight is so hopeless that the International Monetary Fund, the World Bank, and other official lenders simply write off their loans. It’s called the Heavily Indebted Poor Countries Initiative. If the U.S. applies and is accepted, it will join the ranks of Afghanistan, Ethiopia, Haiti, and Zambia, among others.
Balance the budget. The U.S. doesn’t hit the debt ceiling if it cuts spending to the level of income. The Republican Party has been advocating a Balanced Budget Amendment for years. Granted, that’s more of a medium-term goal. Economists say that abruptly balancing the budget by the end of February would shut down much of the government and throw the economy into a severe recession. Not an ideal outcome.
There’s actually a 10th option, which is that Congress will vote to raise the debt ceiling sometime in the next few weeks, instantly making all these speculations irrelevant. But that’s way too ridiculous to contemplate.