Topline
Janet Yellen, Treasury Secretary, dismissed Tuesday's controversial idea of using a legal loophole for a $1 trillion coin to pay the United States debt. She said the concept should not be taken seriously despite its popularity and the increasing risk that the United States will fall into recession if Congress fails to raise or suspend its debt ceiling within the next two weeks.
Despite Yellen's opposition to the minting of a trillion-dollar coin... [+] has gained surprising support as lawmakers come to a halt on the debt limit. Getty Images
The Key Facts
Yellen made a televised statement on CNBC that she was against the idea of minting a coin to pay down some of the nation’s debt. This seems absurd, but it has received support from a few prominent economists, including Paul Krugman, who won the Nobel Prize for Economics. Yellen stated that minting the coin would be like asking the Federal Reserve for money to pay deficits Congress doesn't want to cover through issuing debt. This would compromise the independence of Fed, which is responsible for overseeing monetary policy. The former chair of the Federal Reserve said that the idea was a "gimmick" and also confused the Treasury's and central bank's responsibilities. Yellen's remarks follow a surge of interest in the idea of a trillion-dollar currency. A few lawmakers, including Reps. Jerry Nadler and Rashida Talaib (D-N.Y.), have even jumped on the #MintTheCoin trend on Twitter by advocating it on social media. Yellen rejected the idea but reiterated her concern about the necessity of the United States raising or suspending the debt ceiling. She said she "fully expect[s]]" that the nation will plunge into a recession if it does not do so by October 18 when she believes the Treasury will run out of money to pay its financial obligations. Jen Psaki, White House Press Secretary, also dismissed the idea of minting coins, saying that it was not feasible because it would not be accepted by the Federal Reserve or by our Treasury Secretary.
Important Background
The idea of minting a trillion-dollar coin was first suggested during the 2011 debt crisis. A few scholars discovered a legal provision that allowed the Treasury to create a platinum coin without any limit. Krugman wrote last week in a New York Times op ed that Janet Yellen could create a platinum coin of face value $1 trillion. However, the Federal Reserve can deposit it at the Federal Reserve without $1 trillion of platinum. This would allow Janet Yellen to continue paying the government bills without borrowing. Krugman, who opposed the idea in 2011, has changed his stance due to repeated Republican attempts to block action on the debt limit. Krugman wrote: "Given all the stakes, who cares whether the approach sounds silly? However, some critics have pointed out that the idea could violate the 14th Amendment. This gives Congressthe power to appropriate funds, not the president-appointed Treasury secretary.
What to Watch
Although a trillion-dollar coin may seem unlikely, lawmakers still have options to increase or suspend the debt limit prior to the deadline. The Senate Majority Leader Chuck Schumer (D.N.Y.), is expected to vote on Wednesday for a House-passed measure that would suspend the debt limit until December next year. However, Republicans have promised to block it. The Senate parliamentarian, who advises legislators on chamber rules, stated Monday that Democrats could use a special budgetary procedure called reconciliation to pass a debt limit measure without the support of Republicans.
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Schumer sets a time line for Debt Ceiling Showdown as Lawmakers Strive To Avoid 'Economic Catastrophes' (Forbes).
Republicans Block Democratic Effort to Raise the Debt Ceiling, As Officials Fear Economic Catastrophe (Forbes).
Yellen warns that the Treasury will run out of cash on October 18th, causing serious harm to businesses (Forbes).
