The Guardian just published a new Op Ed I wrote about the Trillion Dollar Platinum Coin.
The United States is again hurtling towards default on its “national debt”. While a two month extension has emerged, the fundamental dynamic remains — and the risk. This is not happening because there is any danger of the Treasury being unable to find buyers for treasury securities. Nor is it happening because of any presumed “burden” from interest payments. Instead, it is happening because the United States Congress has placed an arbitrary limit on how much “national debt” the U.S. government can incur. Congress has authorized and required a certain amount of spending — but is blocking the treasury’s preferred tool for financing that spending.
Given how often politicians have invoked “the deficit” and “the debt”, it’s natural for the public to think that the debt ceiling represents a deeper “lack of money”. When news outlets like CNN publish contextless headlines claiming the “U.S. government” will “run out of money” by a certain date, this impression is reinforced.
That framing, however, is all wrong. What’s going on is much more like an internal accounting mishap than a “cash flow” problem. After all, where does the U.S. government bank? It banks with itself — the Federal Reserve Board. As the U.S. second circuit court reminded us recently in 2019, the money created by the Federal Reserve System is a product of the Federal Government. Crucially, legally speaking the Federal Reserve System is subject to congressional control and oversight.
On a technical level, the Federal Reserve could fill up the Treasury’s account tomorrow. What it lacks is a legal instruction to do so. Normally that legal instruction comes from successful Treasury auctions. But there’s one problem: the debt ceiling prevents more of those auctions. Even if the Treasury could legally borrow from the Federal Reserve — which it can’t — in this case the debt it owed the Federal Reserve would count against the debt ceiling.
If the Treasury can’t make more debt, what if it… made a coin?