The Trillion-Dollar Coin Debate

- February 17, 2023 -

By Lisa Murray-Roselli

DonkeyHotey via Flickr

The US is, once again, about to hit the debt ceiling. Fundamentally, we have more debt than can be funded with revenue: approximately $31.4 trillion in debt compared to $25.7 trillion in GDP. As a nation, we spend more than we can afford. This a familiar predicament for greater than fifty percent of Americans who have credit card or student loan debts they cannot erase. However, some economists and government leaders have suggested a radical solution not available to ordinary citizens: mint a trillion-dollar coin.

Those in favor of this solution spend a lot of time explaining the legality of the action: the US Commemorative Coin Act of 1996 gives the Treasury permission to mint commemorative coins for fundraising purposes. The Act was amended in 2000 to only allow “platinum bullion coins,” and gives the Treasury Secretary discretion on the coins’ “specifications, designs, varieties, quantities, denominations, and inscriptions.” This discretion regarding denomination seems to give the Treasury the ability to mint a coin of any value; therefore, why couldn’t it mint a trillion-dollar platinum coin, deposit it with the Fed, and allow those funds to help pay off the debt?

Modern Monetary Theory (MMT) is the economic theory that provides a considered foundation for this option. One of its key tenets is that governments are not at risk of defaulting on debt if they are sovereign in their currencies: they issue and control the money used for spending and taxation. In other words, what harm can come when a government owes money to itself. Further, MMT proposes that US taxes and bonds do not and cannot directly pay for spending–taxes are simply a tool to get citizens to use government-issued currency and to control inflation, and instead of issuing $1 in Treasury bonds for every $1 in deficit spending, the Treasury could just print the money it needed. And a final broad tenet is that the Fed should always set the interest rate at zero percent with no bond sales, allowing fiscal policy to make all adjustments to inflation.

Scott Hunt, president of Jack Hunt Coin Broker commented, “Minting and using a trillion-dollar coin, in accordance with MMT, to alleviate the debt would probably work IF our economic system had already undergone an elemental shift towards that theory. However, dropping that bit of radical economics into our current system would be like putting a rocket engine in a lawn mower—the consequences would most likely be worse than the problem it aims to solve.”

Many, including former Fed Chair and current Secretary of the Treasury, Janet Yellin, label this solution a “gimmick” and point to its potentially disastrous effect on inflation. It is akin to the quantitative easing the US government initiated during the height of the Covid shutdown—minting and flooding the market with currency in an attempt to keep the economy alive as businesses, industries, and services suddenly came to a halt. This was an emergency not of our own making and the inflationary increase that followed, an unfortunate and expected consequence.

Minting and depositing a trillion-dollar coin would be quantitative easing on steroids. In our current system, money has to represent something of real value. If the amount of money in the Federal Reserve increases by a trillion dollars but our goods and services output remains the same, inflation will sail up and create a burden on American citizens equivalent to a one-time, $3,000 tax, according to some economists. Prices would increase on everything, including money (i.e., interest rates), which would skew investment and business decisions, and have a damaging effect on major markets such as housing and auto, which depend on financing. In addition, overall economic growth would slow.

There is also a strong argument that minting this coin may not be legal. Lawsuits might be brought against the Fed for overstepping its jurisdiction by making fiscal policy rather than monetary policy, and against the Administration for making unilateral spending decisions, overriding Congressional monetary disbursement authority. Additionally, the determination regarding the legality of minting such a coin would have to go through the courts—by the time a ruling was made, the deadline for raising the debt ceiling may have passed or the move may be rejected by the courts. The result would be the same: the US would be in default, undermining the full faith and credit of our country, potentially resulting in a global economic disaster.

Given the certainty of a damaging inflationary increase and the questionable legality of minting and depositing a trillion-dollar coin, economists and government leaders who take the long view reject this as a solution to our debt problem. It is a Constitutional obligation to pay the debt and this debt crisis is a fiscal calamity of our own making. To solve the problem, lawmakers must do what every American household does to stay in the black: successfully implement a reasonable budget.

Debating the validity of minting a trillion-dollar coin would not happen if the issue of the debt ceiling were not weaponized for political gain. The fact is, given the situation and the fact that the government will reach this ceiling by July, the only timely and rational way to avoid defaulting on the debt is to raise the limit. Congress will, eventually, do this. But not before a shameful display of histrionics, threats, and accusations.

The debt crisis is a problem that can be avoided by responsible spending and taxation. Quite simply, it is careless to suggest a short-sighted, quick-fix solution such as minting a trillion-dollar coin. In order for such a move to be taken seriously, our whole economic system would have to make a fundamental shift in the direction of the MMT, and that is not likely to happen anytime soon.