Trillion dollar coin? 14th Amendment? Some argue for far-out fixes to the debt ceiling crisis

Minting a trillion-dollar coin? Invoking the 14th Amendment? Even getting rid of the debt ceiling altogether?

A number of unusual solutions to the ongoing debt-ceiling crisis have gotten new attention in the past week as skepticism abounds that a bipartisan agreement can be reached ahead of a key deadline on June 1.

All are considered long shots but advocates say there is an opportunity in the current chaos as President Biden and House Speaker Kevin McCarthy prepare to sit down next Tuesday for the first time in months.

Though Biden administration officials have called many of the ideas gimmickry, proponents maintain that the unconventional ideas could find their way back to the negotiating table as the chances of an economy-wrecking default increase with each passing day.

"I think the question is how ridiculous, how ludicrous things get," said Rohan Grey, a law professor and one of the most vocal advocates for the minting of a trillion dollar coin as a way of paying the country's bills.

"The thing that actually makes the case for the coin is everybody else acting like foolish children," he added in a recent interview.

The 14th amendment and a trillion dollar coin

The trillion-dollar coin idea, which first originated in the 1990s, stems from a section of the U.S. code that authorizes new platinum coins with the denomination left up to the Treasury Secretary’s discretion. It has been promoted over the years by figures such as Paul Krugman and Laurence Tribe and Philip Diehl, a former director of the United States Mint.

Even as Treasury Secretary Janet Yellen herself has dismissed the notion, activists say it's a viable idea.

The premise — which has even gained adherents among some members of Congress over the years — is that this new coin would be physically minted and deposited at a commercial bank or directly at the Federal Reserve. Those funds would make their way to the Treasury's general operating account to avoid a default.

The coin itself, advocates say, would never need to leave a government vault.

The are other ideas for Biden to unilaterally to end the crisis. One novel approach has to do with the creation of new types of government bonds.

So-called "premium bonds" could theoretically be issued with high interest rates that would, proponents say, allow them to be auctioned off for a much higher price than their face value because of the high returns. A related idea is for "consol bonds" which never mature but pay out interest in perpetuity.

Both ideas look to exploit a possible loophole in the debt ceiling law, which limits borrowing based on the face value that the government is obligated to repay.

Krugman has been supportive of a platinum coin in the past but argued this week that a bond route may be a better option "because nobody understands premium bonds, while people think — wrongly — that they understand the coin."

The 14th Amendment to the Constitution is yet another idea. The Civil-War era amendment includes a line being oft-repeated these days that "the public debt of the United States, authorized by law...shall not be questioned."

That provision was written in the context of the Reconstruction period that followed the war, amid fears that Confederate states would default on their debts. Advocates say it can be invoked now by Biden as a pretext to ignore the debt ceiling and simply announce that the government will continue to borrow.

Dismissals from official Washington

These ideas of course could create their own problems, possibly spurring further inflation or shaking confidence in the U.S. financial system.

The ideas have also drawn repeated dismissals from top officials in Washington.

President Biden was asked about the chances of invoking the 14th Amendment this week in an MSNBC interview saying "I've not gotten there yet," and Yellen added Sunday on ABC that the option could lead to a "constitutional crisis." Both Yellen and Biden say it's up to Congress to address the issue.

Federal Reserve Board Chairman Jerome Powell offered a similar public stance this week, saying that lifting the debt ceiling is the responsibility of Congress. "I don’t really think we should even be talking about a world where the U.S. doesn’t pay its bills. It just shouldn’t be a thing."

Grey has long maintained that Biden officials will dismiss these ideas right up until they have no other options. Some officials have reportedly been quietly weighing their options, including invoking the 14th Amendment, behind closed doors.

Grey suggested that Biden take an even more dramatic action and implement an all-of-the-above strategy given that each unilateral choice before him would be sure to invite legal challenges.

That, he said, would surely lead to multiple lawsuits. "The court would have to strike down every single possible option and it would be very clear to everybody that it was the court that was causing a default."

He says such a dramatic move would have the added effect of "starting a new public conversation about how money works."

Other, perhaps less dramatic, solutions

Another scenario possible in the weeks ahead is that policymakers look for less dramatic changes to the U.S. financial system but still move to head off a crisis.

In that case, there are multiple bills on the docket in Congress to either abolish the debt ceiling entirely or change the rules to make a standoff impossible.

Two weeks ago, Sen. Brian Schatz (D-HI) reintroduced his bill that would repeal the national debt ceiling entirely, saying lawmakers "need to stop playing this very dangerous game with the nation’s economy."

The bill has the support of 10 of Schatz’s Democratic colleagues. While Republicans have yet to sign on, the idea got a boost during a Senate hearing this week from Jason Fichtner, the chief economist at the Bipartisan Policy Center.

"It no longer does what it is intended to do, it doesn't control spending so lets just get rid of the debt ceiling altogether," the expert told the assembled Senators.

Another plan would change the rules around debt limit fights by providing additional off-ramps, including one option where the President could act alone.

The two voices behind that proposal are Rep. Scott Peters (D-CA) and Rep. Jodey Arrington (R-TX).

That effort is unlikely to be an option this month at least. Arrington currently serves as House Budget Committee Chairman and supports Speaker McCarthy’s efforts to bring Biden to the negotiating table.

Ben Werschkul is Washington correspondent for Yahoo Finance.

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