The Trillion-Dollar Coin Might Be the Least Bad Option

Later this year, for no good reason at all, the United States might enter a chaotic period of financial default. Once again, the country has hit its statutory debt limit, because Congress continues to spend more than the government receives in tax revenue. The Treasury has no more legal authority to issue new debt and is currently using a series of “extraordinary measures” to keep the government’s bills paid. Those extraordinary measures will last for only six months or so. At that point, either Congress will raise the debt ceiling or the full faith and credit of the country will be at risk.

[David A. Graham: Kevin McCarthy’s predicament is a warning]

Rohan Grey is a law professor at Willamette University, in Oregon, and a leading promoter of an arcane idea that could save the country from all that drama: The Biden administration could exercise its unilateral legal authority over U.S. currency to mint a trillion-dollar platinum coin and use it to pay the government’s bills. The idea seems peculiar—it first surfaced in 2010 in the comments section of a niche blog devoted to unconventional monetary policy—but Grey and others believe it would be less disruptive than many alternative scenarios.

This conversation has been edited and condensed for clarity.

Annie Lowrey: Let’s start with a simple question. What is the debt ceiling?

Rohan Grey: Before the debt ceiling existed, Congress would include a method of financing with each individual spending bill that it passed. Every piece of spending legislation would say The Treasury is going to issue a certain amount of securities of this duration and type or Congress will fund it with this tax or by seigniorage.

In 1917, during World War I, Congress consolidated different authorities into one and allowed the Treasury to issue bonds without its specific guidance; it created the debt ceiling. Then in World War II, in 1939, it said: As the U.S. government gets more complicated, we’re going to put more trust and discretion in the executive branch. We’ll give you a general limit on the amount of Treasury securities you can issue, and you can use those funds for all our spending commitments. The history of the debt ceiling—counterintuitively—is the history of giving the Treasury, the executive branch, more discretion.

Lowrey: And now?

Grey: As is often the case in politics, the minute you create something, it gets used in unexpected and counterintuitive ways. The debt ceiling has become a locus, a symbolic place, for politicians to fight over overall spending, overall budgeting. Every time people want to second-guess budget practices, every time they don’t like a certain social-welfare program, the debt ceiling becomes a way to object.

Lowrey: Right now, a handful of Republicans have said they won’t lift the ceiling unless Congress negotiates a new set of spending cuts. What happens if Congress does not agree to do that and does not lift the ceiling?

Grey: Right now, we’re using “extraordinary measures,” which is something we’ve done repeatedly once the Treasury exhausts its authority to issue more bonds. Many of those extraordinary measures are much more ridiculous than minting the coin.

Lowrey: We’ll get there in a second.

Grey: The short answer is we have found increasingly convoluted and elaborate ways to avoid a situation in which the Treasury cannot pay its bills. Going forward, one option is to ignore the debt ceiling entirely. Continue issuing Treasury securities—this is sometimes called the Fourteenth Amendment option. If you’re not going to do that, you have two options. You can continue to pay the bills.

Lowrey: In that scenario, the Treasury is seeing if the Federal Reserve would let it overdraw its checking account, basically?

Grey: Right. The second choice is to not spend money that Congress has told the executive branch it must spend—whether that’s repaying existing debt, paying interest on existing debt, contractual debts, Social Security payments, anything else.

[Edward Geist: Nuclear strategists know how dangerous the debt fight is]

You ignore the debt ceiling and openly violate existing law regarding financing. Or you do not violate the debt ceiling, but you violate existing law regarding spending. My concern with the latter is that it means the Treasury secretary is put in the position of deciding what to spend money on and what not to spend money on. That’s a huge executive-branch power grab. In fact, President Nixon tried to do it in the 1970s. He said [in effect], I don’t want to spend money on certain welfare programs going to Black communities. Congress passed the Budget and Impoundment Control Act saying, No, when we say you have to spend, you have to spend. And the Supreme Court has reinforced that view in cases going back to Kendall v. Stokes in 1838.

Lowrey: A major concern is that if we default, there’s going to be huge disruptions in the financial markets. Why?

Grey: Standard & Poor’s downgraded U.S. debt [in 2011], not because there was a chance the U.S. could not pay—the U.S. prints money; it can always pay its debts—but because of the absolute ridiculousness of the political situation. Creditors had reasonable concerns that the United States would fail to govern itself properly. That was the real concern: not default, but cartoonish incompetence.

I would be concerned that the president is willing to openly violate constitutional directives—that’s a bad state of affairs. From everything I’ve heard, there’s unanimity that that is where we’re headed. The White House will prioritize certain payments over others.

Lowrey: What does minting a trillion-dollar coin have to do with all of this? It’s got to be the greatest policy proposal to ever come from a blog comment, I guess.

Grey: The first form of constitutional lawmaking through internet meme.

There’s the general issue. There’s a famous Columbia Law Review article by these very serious constitutional law scholars, Neil Buchanan and Michael Dorf. The White House has used it as their guiding framework for debates over what to do. Buchanan and Dorf lay out a trilemma with the debt limit. Congress gives you three directives in seeming contradiction with one another: You have to spend X. You have to tax Y. You can only issue Z amount of debt. If those are in tension, they argue the debt limit should be the one that gets violated.

I agree with that. But there is, in fact, a fourth option. To frame it as a three-legged stool, you’re already failing. You’re already bringing ideology into what could be an open-ended discussion. If we take seriously that there are limits on spending, limits on taxation, and there is a debt ceiling, we have to exhaust that fourth option before we start ignoring laws on the books: the platinum coin.

Here’s the specific way it works: There’s a provision of law—deliberately put there by a very visionary U.S. Mint director, who had very ambitious goals for the Mint—that lets the Mint issue coins of whatever denomination they want and in whatever quantities they want. The coins don’t have to have a certain amount of metal content. They don’t have to be commemorative, circulating, or noncirculating—that’s all open. They have to be proof coins, which means high production grade. They have to be nice and shiny.

We don’t think of the Mint and the Fed as sisters, but they are, by the way. It’s just one is the sort-of lonely one that nobody talks about. The power to create money in the Constitution is literally the power to coin money.

Lowrey: So you mint a coin.

Grey: Yes. This is also thanks to a Republican named Mike Castle, as part of a commemorative-coin upgrade act that gets incorporated in an omnibus law. Mike Castle’s vision was predictably quite narrow: He wanted to make revenue for the Mint, and by extension the government, by selling commemorative coins. He was thinking in much smaller orders of magnitude, like a few million dollars or something. A nice little revenue raiser. But what if we make coins that aren’t $100 in face value or $1,000 in face value? The sky’s the limit.

Lowrey: How does minting the coin avoid the debt ceiling?

Grey: The Treasury secretary has the Mint create a trillion-dollar platinum coin. It deposits it at the Fed, which credits the Treasury for the full base value of the coin. The Federal Reserve gets an asset and a liability matching one another. It’s just like you taking a $100 bill to the bank and the bank giving you $100 in deposit liability. This is exactly the way that existing coins get booked, by the way. Just with a few more zeros.

Lowrey: It’s a goofy idea. It’s a dumb-sounding idea. It feels like exploiting a loophole. Is that why we haven’t done it?

Grey: That’s a very cynical position. People are coming up with all kinds of gimmicks that sound serious. They sound so complicated. You know, I was an elementary-school teacher, so I don’t have a problem with ideas so simple a 5-year-old can understand them. When a 5-year-old says, “Hey, maybe we shouldn’t have wars anymore,” you’ll hear people say, “Oh, you’re so naive! You’re a child! You don’t understand how the world really works.” Oh, I’m sorry. You’re the smart one! That’s why you’re dropping bombs on Vietnam!

[Derek Thompson: Stop trying to ask ‘smart questions’]

The idea that all of these complicated mathematical models, all these complicated legal analyses, are valid—it’s bullshit. The reality is that this is a self-imposed problem, because we have a fetish for complexity and so-called financial nuance. Look at the history of extraordinary measures that the Treasury secretary has been taking since the 1980s! They’re all accounting gimmicks, every single one of them. People in the corporate-finance world say that [minting the coin] is a joke; this is a gimmick. They’re really saying it’s populist, not technocratic.

Lowrey: I do wonder whether they would have just done it 10 years ago if it had sounded less weird, or if the media had covered the idea differently.

Grey: When public officials want to change the number of years that the National Security Agency is allowed to retain data, they do it on a rainy Wednesday buried in paragraph three of a press release.

Lowrey: Instead we have a debt-ceiling near-crisis every couple years. It’s financial Groundhog Day.

Grey: For a long time, during the Obama administration, the strategy was: Let’s not legitimize debt-ceiling terrorism. If we start talking about ways to get around it, we’re taking the pressure off the Republicans to come back to the negotiating table and do what they should do.

It’s very dangerous to play a game of chicken. It requires two sides to play! If you swerve, there’s no game of chicken anymore. The Obama administration wanted to play a game of chicken. And their bet paid off in the sense that Mitch McConnell eventually blinked and kept blinking. It wasn’t costless. It was at the expense of millions of people that had to get sent home and didn’t get their paychecks, and a huge amount of political energy was devoted to this issue that could have been focused on other things. And they went through the deficit-reduction commission. It wasn’t costless. It was a very risky gamble that required them to say, in essence, I’m willing to lie about the obligations that I have as the executive branch to respect Congress’s spending authority.

Lowrey: If we were talking 10 years ago, I think I would have said that this was about small-government ideology on the Republican side. I would have been wrong about that. It’s not about budgetary discipline; it’s more about procedural power.

Grey: Yes. Their logic is: I want to litigate the previous Congress. I can’t do that. I can’t unwind the spending bills that were passed. I don’t have the votes. I’m going to point at the president and make him the patsy for it so I can shadowbox the prior Congress.

Lowrey: There’s a new set of Republicans doing just that.

Grey: You know, I think the media has to take some responsibility here too. We uncritically accept the Democrats’ framing of this as the correct one. The reality is, whether you are a bunch of apocalyptic children or seemingly cool-headed technocrats who can’t work out how to actually make government work, you’re both part of the problem. And hopefully, the media can take responsibility for the fact that they’ve had 10 years to frame this with a different narrative, and they haven’t done it. Every time, the fourth option is a gimmick, but extraordinary measures aren’t; every time, violating the Constitution is the “reasonable” path forward.