Mint the Coin!

You know about the debt limit. It’s an extra obstacle — as if we needed one — to the smooth running of the Congress, exploited by Republicans. The debt incurred by the U.S. government is founded on borrowing for spending that has already survived the budget process. In other words, it’s a requirement that spending be approved twice. Note that there is nothing similar for tax cuts that themselves increase the national debt.

U.S. government securities (bonds) are universally regarded as the safest financial instrument in the world. Any failure to pay interest due on bonds, on time, would be regarded as a default that would instantly destabilize financial markets everywhere. If a foreign power threatened the credit of the U.S. governmment in this way, it would be regarded as an act of war. Coming from inside the house, not so much.

So what the hell is “the coin”? It stems from an obscure provision of current law that empowers the U.S. Treasury to create new coinage at will. If the government mints a penny, it is an asset created out of thin air. Creation of it does not count as debt. Accordingly, some genius hit upon the idea of circumventing the debt limit by minting a coin that is assigned the value of a trillion dollars. It is said to be platinum, but it could just as easily be made out of gingerbread. As with real coins, there is no necessary relationship between the assigned value of the coin and the value of whatever substance it is made of.

In an instant, the government has an extra trillion and doesn’t need to borrow (or even tax). Note that inflation results from spending, not from the mere creation of money by the government. With the benefit of the coin, government need not spend another trillion dollars. But it could spend whatever it needed to make good on its debts. The debt limit law would be rendered a dead letter.

Is the coin nutty? Of course it is. But so is refusing to pay debts already accrued, for spending that was previously approved, and risking world financial collapse.

An alternative to the coin is for the Treasury to just ignore the debt limit. After all, the law also says the government is required to make good on its debts. People owed money could sue. That law contradicts the debt limit law. The Administration could just ignore the debt limit and let the GOP squawk. Let them run to the Supreme Court and make a new spectacle of themselves.

The deadline for settling this has been said to be Thursday, but in reality the Treasury can juggle its payments and prolong the showdown until the summer. But sooner or later, this issue will have to be confronted.

The implications for Democrats of being terrorized into making cuts in Social Security and Medicare, to appease the House Republicans, need not be further elaborated.