The trillion-dollar coin: change Americans can believe in

It may seem like an idea with currency, but miinting a trillion dollar coin to sidestep the debt ceiling is a fabricated solution to a fabricated crisis. Wikimedia Commons

In the midst of genuine economic and political challenges, Tea Party Republicans have been hard at work generating additional problems. From the debt-ceiling showdown that cost the US its AAA credit rating to the fiscal cliff negotiations that led to layoffs and budget cuts despite a last-minute resolution, these artificial crises have had real consequences.

No sooner had the fiscal cliff been averted than Republicans vowed to force another fight over the impending debt-ceiling authorisation. In response, economist Paul Krugman floated a novel resolution: President Obama should order Treasury to mint a trillion-dollar coin, buying the US another year’s worth of credit and sidestepping the whole mess.

A gimmick? Of course. But symbolically, it’s the perfect response: a fabricated solution for a fabricated crisis.

Here’s the deal with the debt ceiling: The United States is one of only two democratic countries to have one. (The other country, Denmark, set its so astronomically high that they’ll likely never reach it.) The debt ceiling caps the borrowing authority of the US government. Congress, having already voted to spend the money, has to separately authorise the borrowing necessary to pay it back, or else default on the nation’s debt.

Given the choice between the inevitable (raising the limit) and the unacceptable (going into default), Congress has traditionally treated the debt-ceiling vote as a formality, with dissenters never mustering enough votes for their opposition to be more than symbolic.

Then Barack Obama won the 2008 election and Republicans suddenly lost their appetite for large deficits. Once Republicans won control of the House in 2010, they had the power to turn the debt-ceiling vote into a hostage negotiation: give us massive spending cuts or we drive the nation into default.

While Republican leaders in the House showed little appetite for this sort of Thelma-and-Louise politics, the new Tea Party caucus made it their signature manoeuvre. The debt-ceiling crisis resolved with the construction of the fiscal cliff. The fiscal cliff was averted the day the US reached the debt-ceiling again. So it will continue, ad infinitum and ad absurdum, until Tea Party Republicans lose influence within the GOP. The question is how badly they will damage their party and the U.S. economy in the process.

Compare all this to the 1990s, when House Republicans and President Clinton reached an impasse over spending cuts and tax rates. Their inability to find common ground led to a real crisis: the federal government shut down for over a month. But when the two sides returned to the bargaining table, they reached a compromise that resulted in the first budget surpluses in decades.

In sharp contrast, the fiscal cliff and debt-ceiling votes have yielded no lasting fiscal solutions. They are instead wholly avoidable and unnecessarily damaging crises. They inject uncertainty and risk into an economy that needs far less of both.

This is not to argue, as Vice-President Dick Cheney once did, that “deficits don’t matter”. In the long-term, America’s growing debt spells economic catastrophe. In the short-term, however, on the heels of an economic collapse and sluggish recovery, deficits are far from the primary fiscal concern. Indeed, given the fragile economy, switching to austerity measures to control spending would only deepen the country’s economic woes.

Because Tea Party Republicans lack the political power and public support to advance their agenda, they have resorted to artificial crises and obstructionism to get their way. Which makes an artificial solution like Krugman’s trillion-dollar coin a perfect match. Sure, the coin won’t solve any of the actual problems facing America. But it would help put an end to the fake ones, giving Americans a chance at a working political system at a moment they desperately need one.

Facts matter. Your tax-deductible donation helps deliver fact-based journalism.