Today, New York Times columnist and Nobel prize winning economist Paul Krugman wrote that President Obama should be "absolutely" prepared to mint a one trillion dollar platinum coin and use it to pay the government's bills. It wasn't a typo: a lot of people are discussing the trillion-dollar coin as a way to avoid a fight over the debt ceiling. But what is it? And why? And whose face will be on it? Here's our guide.
What is the trillion-dollar coin?
Hypothetically, it's a platinum coin worth one trillion dollars, minted by the Treasury and deposited at the Federal Reserve, and used as a kind of loophole to avoid problems with the upcoming debt ceiling.
What's the debt ceiling?
The debt ceiling is the upper limit of what the U.S. government legally allowed to borrow in order to pay its bills. If the debt ceiling is reached, and Congress doesn't raise it, the Treasury won't be legally allowed to borrow more money, the government won't be able to meet its obligations, and will likely go into default.
When do we hit it?
We actually already did — on December 31. The Treasury is currently taking "extraordinary measures" to ensure the U.S. pays its bills, but can apparently only keep that up for a few more weeks before action needs to be taken.
Why won't Congress just raise the debt ceiling?
The Republicans in the House of Representatives want to use the debt ceiling approval as leverage with the president and Congressional Democrats: we'll raise the debt ceiling only if you cut spending, they're essentially saying.
But wouldn't the consequences of not raising the debt ceiling be horrible?
Yes. If the government went into default, it'd be catastrophically bad for the economy: interest rates would probably go up, the loss of government paychecks would lower consumer spending, and there'd be a widespread sense of panic over the United States' creditworthiness.
So this is why we're talking about minting a trillion-dollar coin.
Right. If the Republicans try to hold the debt ceiling raise — and by consequence the American economy — as a hostage in their war on government services, the trillion-dollar coin is a way to get around the vote entirely.
How does it work?
Well, like any other coin, basically? The Treasury prints it and deposits it in the Federal Reserve, and then, boom: the U.S. government has a bank account with a trillion dollars with which it can pay its bills. For a more technical explanation, involving the word "seigniorage," here's the Corrente post from last year that first proposed the idea.
Would it be bad for the economy? Wouldn't it cause inflation?
No: the trillion-dollar coin won't increase the money supply any more than raising the debt ceiling would. And consider the alternative — the U.S. government defaulting.
But how is this even... allowed? The Treasury can't just print whatever money it wants, can it?
Generally speaking, no, the Treasury can't just print money to pay off its debt. But there's a legal loophole, intended to deal with commemorative coins, that gives the Treasury secretary the ability to strike platinum coins to whatever specifications he (or hypothetically she) wants.
So he could make any coin he wanted, as long as it's platinum?
Yeah — both the denomination and the design are up to Tim Geithner, basically. He could mint a coin for $69 trillion or $420 trillion. He could make it a triangle and put John Boehner's face on it. He could make it the size of a horse and engrave "MEGADETH RULES" on the side.
Wow. This is awesome.
Yeah, you can see why it's so popular! Congressman Jerrold Nadler has endorsed the idea. Business Insider's Joe Weisenthal has started a Twitter campaign (#mintthecoin). And today, Nobel prize-winner Paul Krugman endorsed the idea. The president, Krugman writes, "will, after all, 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. The decision should be obvious."
What do Republicans think of this?
They think it's ridiculous. (They're not wrong!) But they might also be a little scared: today, Rep. Greg Walden introduced a bill "to stop U.S. Treasury from creating trillion dollar platinum coins to pay bills and expand debt."
What would the plot of a hypothetical Ocean's 14 centered around the heist of this coin involve?
I feel like, you get Julia Roberts to seduce Tim Geither, or something? And Matt Damon pretends to be a tourist who bumps into Ben Bernanke and picks the coin out of his pocket? Just spitballing here.