Would a $1 Trillion Coin Fix Debt Ceiling? Yes and No, Experts Say

Gold bullion bars and coins are seen for sale, in this file photo. (Mario Tama/Getty Images)

The federal government will run out of existing funds to pay the nation’s bills sometime this summer unless Congress acts to raise the debt ceiling.

Or will it?

“There are actually quite a few ideas. What they’re doing is getting around the debt limit in a way that technically isn’t raising debt, but economically is the same thing,” Louise Sheiner, policy director at The Hutchins Center on Fiscal and Monetary Policy, told The Epoch Times.

However, Sheiner, like others we spoke with, thinks these work-around solutions have serious drawbacks and could do more harm than good.

U.S. President Joe Biden shakes hands with House Speaker Kevin McCarthy (R-Calif.) in the House Chamber of the U.S. Capitol in Washington on Feb. 7, 2023. (Jacquelyn Martin-Pool/Getty Images)

House Speaker Kevin McCarthy (R-Calif.) and President Joe Biden are in negotiations over raising the debt ceiling.

The limit is currently $31.4 trillion, which would have been reached on Jan. 19 if U.S. Treasury hadn’t taken “extraordinary measures” to delay it. Those measures will be exhausted sometime between July and September, the Congressional Budget Office estimates.

A $1 Trillion Coin

The idea most-often discussed is the creation of a $1 trillion coin, which could be placed on deposit at the Federal Reserve. The idea was first proposed in a 2011 by Jack M. Balkan, a professor at Yale Law School.

The coin could be used in either of two ways. The U.S. Treasury could use it to pay off some of the government’s debt, thereby moving it well below the limit.

Or the Treasury could use the money to keep paying the nation’s bills while existing debt remained the same.

That would be legal, experts say, because the government has the power to create money. Federal law does impose a limit on the amount of paper money in circulation, but that limit does not apply to coins.

“The $1 trillion coin idea could be a completely fine way of getting around the debt limit,” Sheiner said. “Technically, it could happen.”

The Federal Reserve building is pictured in Washington on Aug. 22, 2018. (Chris Wattie/Reuters)

Despite the legal feasibility of the plan, she opposes the move for two reasons.

“One is that it would seem like a gimmick. People wouldn’t understand it. So the question is, would it help?”

The action would likely also undermine public confidence in the independence of the Federal Reserve, Sheiner said.

“It would look like the Fed was working with the administration to get around Congress.”

“It’s a complete gimmick,” Peter C. Earle, an economist at the American Institute for Economic Research, said of the $1 trillion coin “scheme.”

“It’s only possible owing to a selectively interpreted legislative loophole and would likely be challenged in the Supreme Court,” Earle told The Epoch Times.

“As a matter of fact, it could set up a particularly damaging confrontation between the Treasury and the Federal Reserve, as there is no obligation for the Fed to accept (purchase) the coin. The very idea that the idea is being considered seriously in high levels of government finance shows how deep the profligate spending disorder goes.”

U.S. Treasury Secretary Janet Yellen has publicly questioned whether the Federal Reserve would accept a $1 trillion coin, casting doubt on the viability of the idea.

Overdraft Protection

A second workaround was proposed by finance journalist John Carney. He suggested that the Federal Reserve Bank adopt an overdraft policy that would allow the government to keep writing checks and, in effect, overdraw its account at the Fed.

Banks usually charge hefty fees for overdraft protection, but those are often waived for large customers. Carney argued that the Federal Reserve should be allowed to do for Uncle Sam what most banks do for their best clients: cover their checks even if the account balance is too low, and allow the customer to make up the difference later.

President Joe Biden speaks during a Cabinet meeting in the White House in Washington on Jan. 5, 2023. (Drew Angerer/Getty Images)

Overdrafts are usually considered a short-term loan, so the plan might not withstand a legal challenge. The legality would depend on whether an overdraft of the government’s account would be considered a debt “guaranteed by the United States Government” under federal law.

Just Do It

A third idea is that the president could treat the debt ceiling as if it were unconstitutional, keep borrowing money, and hope the Supreme Court would agree.

This idea is based on an interpretation of the 14th Amendment to the U.S. Constitution, which states: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

Proponents of this argument argue that the debt ceiling questions the validity of the U.S. debt.

Rep. Steny Hoyer (D-Md.) and Sen. Chris Van Hollen (D-Md.) have backed this plan in the past.

Former President Bill Clinton appeared to endorse the option in a 2011 interview, where he said he would exceed the debt ceiling “without hesitation, and force the courts to stop me” if that were necessary to avoid a default.

So far, no sitting U.S. president has endorsed any of the three measures.

Biden has said that he expects Congress to raise the debt limit to protect the full faith and credit of the United States.

McCarthy has said there will be no default on U.S. debt, but he will insist on a “responsible” increase to the debt limit, accompanied by spending concessions.