Mint the coin? Buy back bonds? 7 'gimmicks' for dodging the debt limit.
President Biden and House Republicans are locked in a showdown over the nation's debt ceiling, with the administration ruling out negotiations over conservative demands to cut government spending in exchange for increasing the federal borrowing limit. But some economists, lawyers and academics say the administration has options that could let the White House dodge the debt limit entirely - without needing to worry about the GOP at all.
These experts want to convince the Biden administration to try to end the standoff unilaterally, circumventing Congress, and have proposed at least seven different ideas for doing so. Their ideas have been fiercely challenged by more mainstream experts, who have identified myriad financial, political and legal risks in all the suggested solutions. And Biden and his advisers have been adamant, at least so far, that the only viable outcome is for House Republicans to raise the debt ceiling without concessions. (White House officials have reviewed executive options but are publicly maintaining they are unworkable. Biden will meet House Speaker Kevin McCarthy (R-Calif.) on Wednesday.)
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Failure to successfully resolve the standoff - or trying a unilateral action that goes awry - could have devastating consequences for the U.S. economy. The Treasury Department this month announced the beginning of "extraordinary measures" to shuffle money around as the federal government hits the ceiling on its borrowing limit. But those measures are only expected to sustain the government's operations until June, reviving the debate over other potential resolutions.
Some academics argue that the solution is within the administration's grasp, even if their options might sound far-fetched.
"These aren't technical problems, but problems with politics and perception: The people in the administration are uncomfortable violating norms of how things are done," said J.W. Mason, an economist at the City University of New York who supports some of the workaround ideas. "The problem is that everything in this space is a gimmick. That's the nature of the problem. It's just a question of which gimmick you prefer."
Other experts, however, are more skeptical that any of these ideas would work without significant downsides. Many economists are concerned that unilateral action could lead investors to demand a higher rate of return on new government bonds because there would be legitimate worries about whether the debt was issued properly, leading to hundreds of billions of dollars in additional borrowing costs for the federal government. Other experts worry that unilateral actions could backfire even more dramatically by undermining the value of the U.S. dollar, throwing global financial markets into a panic.
"Investors and other economic actors will likely be very uncomfortable with an environment where Treasury is either failing to meet some of its obligations or unilaterally moving in a direction that is totally unfamiliar. There are severe risks in any unilateral action that Treasury decides to take," said Shai Akabas, the director of economic policy at the Bipartisan Policy Center, a nonpartisan think tank. "We don't know what the outcomes would be. But there are many, many questions."
Here are seven of the ideas being pushed for responding to the debt limit unilaterally, as well as why some experts - and White House aides - are skeptical of them.
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Mint the $1 trillion coin
The most headline-grabbing proposal calls for the Treasury Department to mint a new platinum coin, declare its value to be $1 trillion, then deposit that coin in its account at the Federal Reserve. Assuming the central bank accepts the deposit, the $1 trillion would allow the federal government to finance its obligations. Crucially, it would not involve issuing new debt and thus would not violate the borrowing limit.
Proponents say the government is legally authorized to "mint the coin" under a 1997 law that gives the U.S. Mint the ability to make money off sales of novelty coins. That law specifies that it is "in the Secretary's discretion" to mint and issue platinum coins of any denomination and quantity.
Even some skeptics of putting the idea into effect believe in its legality. "It's technically within the president's authority to mint a huge coin," said Laurence Tribe, a Harvard law professor who is influential with the Biden administration. The director of the Mint when the 1997 law was passed has said the coin idea would be legal under the law, although the GOP congressman who helped write the platinum coin provision has said it is not.
Beyond questions that make fodder for barroom banter (Whose face goes on the coin? Would it be comically large? How do you make sure it isn't stolen by Ocean's 11 in the middle of the night?), legal experts have posed a range of questions about the idea. One key challenge is that the Federal Reserve may not accept the coin. (A Federal Reserve spokeswoman did not respond to requests for comment on how the central bank would react to a hypothetical attempt by Treasury to deposit a $1 trillion coin.)
"It truly is not by any means to be taken as a given that the Fed would do it, and I think especially with something that's a gimmick," Treasury Secretary Janet L. Yellen told the Wall Street Journal in an interview last week. "The Fed is not required to accept it; there's no requirement on the part of the Fed."
Some experts have suggested that the conservative majority on the Supreme Court could rule the coin illegal, forcing the administration back to the negotiating table with the GOP. More aggressive commentators, such as modern monetary theorists Nathan Tankus and Rohan Grey, have argued that the Biden administration could respond by ignoring the courts and somehow forcing the central bank to deposit the coin.
Don't expect Biden to do anything that dramatic. A 2021 report by the nonpartisan Congressional Research Service raised several objections to the coin proposal: that fiscal and monetary policy are supposed to be separate, and this kind of interaction between the Fed and Treasury would blend them; that such a move would undermine congressional authority; and that doing so could undermine faith in the U.S. dollar.
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Declare the debt ceiling incompatible with spending laws
A less flashy plan - one viewed by at least some administration officials as more feasible than the coin - is for the Biden administration to simply declare that it has no choice but to break the debt limit because abiding by it would mean violating spending laws Congress has also enacted.
The reason is simple: Congress passes, and the president signs, legally binding appropriation laws specifying what the executive branch is required to spend. There would be no way, the administration could argue, to stop borrowing money without breaking the spending laws.
"There is very clearly a conflict between the debt ceiling on the one hand and the law that is the federal budget itself on the other hand," said Bob Hockett, a former Federal Reserve official and congressional economic policy adviser who teaches public finance at Cornell and Georgetown. "People seem to forget that the federal budget is itself a legally effective enactment. Budgets are legal requirements that Congress duly passes, and our legal system has a wealth of interpretive principles for resolving conflicts between various applications of laws, which in this case preempt the debt ceiling."
Constitutional lawyers refer to this kind of scenario as a "trilemma," in which all of the president's potential decisions - including inaction - would potentially pose a constitutional crisis. Michael Dorf, a constitutional law professor at Cornell, has argued in articles with Neil Buchanan, of the University of Florida's Levin College of Law, that in this event, "the president will have literally no way to comply with all the laws and will have to violate at least one of them."
"If the president faces one of these crises, he should minimize the violation," Dorf added in an interview. "And our view is that the way to do so is to exercise the least amount of legislative direction by violating the debt ceiling rather than picking and choosing which bills to pay."
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Raise cash by selling federal land (then buy it back)
If Congress and the White House are at a stalemate over the debt limit into the summer, the administration may have other options to buy more time to find a resolution.
To take one potentially dramatic example: Some scholars say the White House could move to auction off federal property, such as public lands, to raise immediately needed cash. That land could be reacquired after the impasse, although it is unclear how much additional time that would give the Treasury Department.
"There are things you can do to delay," Dorf said. But he added: "All that does is buy you a little bit of time."
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Buy back old bonds at a discount
Alternatively, some White House allies have said the Treasury could repurchase government bonds issued with lower interest rates, such as those issued during the pandemic, that are now available on the secondary market for less than face value because the Federal Reserve has raised interest rates. Since such a maneuver would reduce the amount of outstanding debt at a cheaper rate than its official value, it would give the administration more time to avoid hitting the borrowing limit.
"It changes nothing in terms of government being better or worse off; it's purely an accounting trick," said Dean Baker, an economist at the Center for Economic and Policy Research, a left-leaning think tank, who has pitched the administration on the idea. "But if we're playing games, it's totally legal."
White House officials are not expected to support these ideas for finding money, especially months before the government exhausts its borrowing capacity, and they've emphasized that the only permanent solution is for Congress to raise the nation's borrowing limit - as it has during every prior impasse.
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Invoke the 14th Amendment
In the aftermath of the Civil War, Congress approved the 14th Amendment to the Constitution, which stipulates in Section 4 that the federal government's public debts must be repaid. The purpose of this part of the amendment, passed by the radical Republicans in the 1860s who feared a revived South, was to make clear that the federal government was responsible for honoring the national debt incurred during the war - even if former Confederate states didn't want to pay their share of it.
Some scholars have argued that this provision would enable the president to ignore the debt limit. Congress's actions during the debt ceiling standoff of 2011, under this interpretation, violated the Constitution, according to a 2013 academic paper by Jacob D. Charles, a law professor at Pepperdine Caruso School of Law. "A conclusion of this nature would be the basis for the president to ignore the debt limit when congressional actions create unconstitutional doubt about the validity of the public debt," Charles wrote.
Tribe, the Harvard law professor, added: "Section 4 of the 14th Amendment says the threat to default is itself unconstitutional. The country has to stand behind its word in terms of all of its debt obligations, and that is not something that is a matter of opinion. It's very explicitly in the Constitution."
In its 2021 report, the Congressional Research Service noted that this part of the Constitution has been tested only once by the Supreme Court, adding that it is "unclear how the provision might apply to the statutory debt limit in particular."
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Issue 'consul bonds' that keep paying interest but never mature
Other solutions lean more heavily on financial wizardry.
To fund the federal government, the Treasury Department sells bonds for cash. These bonds yield an annual interest rate, and they promise repayment of the principal at an agreed-upon time known as the maturity date.
It's this second part - the principal - that technically counts against the government's borrowing limit. At least theoretically, the United States could issue debt that consists solely of interest payments in perpetuity and do not have a maturity date, which could be sold into the secondary market because of guaranteed interest payments. This debt would bring in cash to fund the government without counting against the borrowing limit, according to Carlos Mucha, an Atlanta attorney who also first came up with the $1 trillion coin idea.
"With this kind of bond, there is no principal the government is guaranteed to repay," Mucha said. "So it would not count under the debt limit."
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Ask the Fed for an advance
On Jan. 14, 2022, the Federal Reserve Board announced that it was transferring $107 billion into Treasury's accounts as required under the law. This transfer was routine and unremarkable, but it reflected a part of the financial plumbing that some experts say could help defuse the debt-ceiling crisis.
The Federal Reserve routinely sends to Treasury the income from interest payments made on government bonds that the Fed holds on its balance sheet. But there's nothing that would appear to prevent it from doing so ahead of time, according to Mason, the CUNY economist. Prepaying these "remittances" could give the federal government some fiscal wiggle room.
A spokeswoman for the central bank declined to answer hypotheticals about this kind of scenario.
"I don't think there would be an obstacle for the Fed to prepay remittances," Mason said. "It's silly. But everything in this space is going to be silly."
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