A US government default on its debt would deal a body blow to the economy, resulting in widespread job losses, higher interest rates and economic pain that would last for years. Treasury Secretary Janet Yellen has predicted a “widespread economic catastrophe” if the debt ceiling isn’t raised, with millions of Americans suddenly strapped for cash.
What the White House is saying
“We were having these conversations with Jack Lew and others about what options in fact were available, because it had never happened before,” he said. “There were all kinds of wacky ideas about how potentially you could have this massive coin…. This theory [was] that I had the authority to just issue this massive trillion dollar coin, a trillion dollar commemorative coin, and then on that basis we could pay off US Treasuries.”
What experts say
But as bad as a default would be, most experts oppose the use of the trillion dollar coin. They say that such an audacious way of avoiding default would shake the confidence in the dollar and US Treasury as much or more than an actual default.
“Global investors will know that this isn’t a sustainable way to pay the government’s bills, and given the constitutional crisis it would ignite, it will increase the odds they won’t get paid in a timely way at some point in the future. The trillion dollar coin will not forestall a financial crisis and economic crisis downturn. The only winner in all this would be cryptocurrency.”
Using the coin to pay America’s debts would shake the confidence in the dollar going forward, and would only call attention of investors worldwide to problems of governing the country, said Philip Wallach, senior fellow at the American Enterprise Institute, a conservative think tank.
“It is so glitzy and gimmicky, it’s the worst thing you could do,” he said. “It’s really designed to capture the imagination of the whole world. At the end of the day, a fiat currency’s stability doesn’t rest on anything other than people’s belief that money is worth what they’ve believed it to be worth. Doing something like the trillion-dollar coin is a great way to get people to think that dollar is not such a great currency.”
Right now the Treasury Department is taking what it calls “extraordinary measures” in order to keep paying its bills, but Yellen has said it will run out of those options sometime in the middle of October. Wallach said there are probably other steps that can be taken if the debt ceiling isn’t raised by then, short of the flashy trillion-dollar coin.
“I think it would be irresponsible for the Treasury not to have a whole menu of options to generate cash,” he said “They would come up with innovations that are way more arcane and boring. I have faith in them.”