The easiest way for the United States to keep paying the debts it owes is for Congress to raise the debt ceiling like it usually does. However, House Republicans do not want to do it the easy way. Silly problems call for silly solutions of which there is no shortage. A lot of people are looking at more creative ways to pay the money the government owes. Here's a guide to the best barely legal ones.
Plan: The $1 trillion platinum coin
How it works: The government needs more money to pay its obligations. If Congress won't let it borrow money, why not just make more money? The U.S. Mint is allowed to mint platinum coins. It could mint a $1 trillion coin, and and the Treasury could deposit in its Federal Reserve account. (The National Republican Congressional Committee imagined the coin at left; it failed to understand that you don't actually need $1 trillion worth of platinum to make a $1 trillion platinum coin.)
Pros: This is probably the coolest plan, in that it sounds like something from a James Bond or Austin Powers movie, plus it was a Simpsons episode. In theory, the government would never have to ask Congress to raise the debt ceiling again.
Cons: The coin's coolness is also a liability. The New York Times' Edward D. Kleinbard called it "fantastical." Since the government would never have to ask Congress to raise the debt limit again, there would likely be a massive freakout among lawmakers.
Plan: Issuing federal scrip
How it works: The government would pay bond holders with the tax revenue that will keep coming in after the debt ceiling is breached, and issue I.O.U.s to government contractors, the Times' Edward D. Kleinbard explains. This would not violate the debt ceiling because it wouldn't be borrowing, but "a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay." Scrip could be redeemed for real dollars when the debt limit was raised. The New York Times' Paul Krugman suggested calling them "moral obligation coupons."
Pros: It's been done before: in 2009, California issued 450,000 registered warrants with a total value of $2.6 billion. People who needed cash could sell the scrip to banks, and it prevented the state from getting a lowered credit rating. (See chart at right from the California state controller's office.) If the federal government did this, New York's Jonathan Chait argues, it might quickly resolve the problem. "Government contractors are getting IOUs, keeping them in business, but not making them terribly happy," Chait writes. "Then they start screaming at the House Republicans to stop being crazy people and just raise the debt limit already."
Cons: It's not nearly as cool as the $1 trillion coin. And while Kleinbard writes that the scrip "would not explicitly challenge any constitutional allocation of powers," he concedes it would hardly be painless.
Plan: The 14th Amendment option
How it works: Section 4 of the 14th Amendment to the Constitution says, "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…" So, Obama claims the debt limit is unconstitutional, and Treasury simply ignores debt limit and issues new debt to cover its obligations, as Joseph M. Firestone explained during the 2011 debt limit fight.
Pros: Outraged parties might not be able to challenge the administration's claim that the debt limit is unconstitutional Firestone writes, "because the House of Representatives alone will lack standing in the Supreme Court."
Cons: House Republicans have said this would be an impeachable offense, and the White House has already said it won't do this.
Plan: The exploding option.
How it works: During the 2011 debt ceiling fight, Yale law professor Jack Balkin explained for CNN, "The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government’s checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days."
Pros: This could be done indefinitely, Firestone says.
Cons: It might not be even barely legal, since it might be "functionally a debt instrument," and the debt ceiling forbids issuing new debt, Firestone writes. Further, it could be that the option is being "'monetized' by the Fed in complete analogy to the monetization of debt instruments that is expressly prohibited by Congress."
This article is from the archive of our partner The Wire.
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