1. The Trillion-Dollar Coin
This idea—originally coined (pun intended) by an anonymous commenter known as “Beowulf” on the personal blog of financier Warren Mosler—would take advantage of a loophole in the law that allows the Treasury to produce platinum commemorative coins, which can then be sold to make a profit.
Although this law was intended to be used only for relatively inexpensive commemorative coins, “Beowulf” pointed out that there’s no real limit—so the Treasury could have a trillion-dollar coin (or multiple trillion-dollar coins) minted and then deposited into the government’s account at the Fed. With $1 trillion readily available, the government could easily begin to pay off its debts.
Could This Really Happen?
It may sound like a crazy scheme hatched in an action movie, but the trillion-dollar coin plan is legal. In fact, former U.S. Mint director Philip Diehl, who originally wrote the law that gave birth to this idea, told Wired magazine, “When I first heard about the idea to mint a trillion-dollar coin, I was very surprised. But because I know that law backwards and forwards, I knew immediately that the guy who came up with the idea was right.”
After gaining steam with bloggers and even some economists like Paul Krugman, it seemed that there was a possibility that the idea could come to fruition: On January 9, White House Press Secretary Jay Carney did not explicitly rule out the possibility of using the trillion-dollar coin loophole. However, he did say that, “there is no Plan B, there is no backup plan. There is Congress’s responsibility to pay the bills of the United States.”
On January 12, a Treasury spokesman nixed the plan as well, saying, “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.”
2. Federal Scrips
Although it’s not as cool as a trillion-dollar coin, this plan is also creative: In this scenario, the government would pay back those who hold bonds with tax revenue collected this year. But others who are owed money by the government–federal employees, defense contractors, Medicare service providers, Social Security, etc.—the government would issue “scrips,” which are basically akin to IOUs.
These could then be redeemed at a later point for real money–if or when the debt limit is raised. The idea of using scrips first became popular during the Great Depression, when cities and businesses struggled to pay off their debts. However, it’s not an ideal situation, since you’re basically trusting the government on its word to pay you back. And if you’re issued a scrip, you don’t have a way to get the money you’re owed earlier than the government can pay it back.
Could This Really Happen?
Yes. There’s even a precedent: In 2009, California issued scrips equaling $2.6 billion due to a budget crisis. Thanks to pressure from scrip recipients and the public, California was quickly able to work out a deal, allowing the scrips to be redeemed for cash within a couple of months.