It sounds like the plot of a PG-13 political action movie: The US might need a $1 trillion coin to save itself. But this week, the idea of minting one was being floated as a way around the federal debt-ceiling crisis to avert a possible default and the economic catastrophe that could ensue.
The US government runs out of money to pay its bills on October 18, according to the Treasury Department, and if Congress does not raise the debt limit – the amount of money the government is allowed to borrow – economists warn it could trigger a recession. Though lawmakers acknowledge the gravity of the situation, Senate Republicans have blocked Democrats' attempts to resolve the issue.
One potential remedy is to have the US Mint strike a $1 trillion platinum coin, an idea that first surfaced during another debt-ceiling debate in 2011 and gained traction among some left-leaning policy wonks. Even the White House briefly entertained the idea. Here's what you need to know about this untested realm of monetary policy.
What is the $1 trillion coin?
Congress spends more each year than it collects in revenue. Though the government borrows money to make up the difference, there's only so much debt it is allowed to carry.
Enter the $1 trillion coin. The idea is that the president could order the treasury secretary to mint a $1 trillion coin out of platinum, then deposit it with Federal Reserve. Then, just like that, the government would have an additional $1 trillion to pay off its obligations. The debt ceiling is no longer an issue.
Why platinum? The Treasury is limited by law on how much paper money and gold, silver and copper coins it can circulate at once. But there's no limit on how many platinum coins it can circulate, or on their value.
How would the coin avert a government shutdown?
A shutdown occurs when the federal government no longer has enough money to pay its bills. The lack of funds forces it to close certain functions – such as monuments on the National Mall and passport services – that it can't afford to finance for the time being. Essential services, such as the military and air-traffic control, continue to operate.
With the theoretical $1 trillion coin on deposit, the government could pay its bills without additional borrowing, making the debt ceiling a non-issue and, thus, averting a government shutdown.
What's the downside to the $1 trillion coin?
Experts are not entirely sure, mostly because the idea is entirely theoretical.
A major concern for economists is hyperinflation. Minting the $1 trillion coin would be like creating money out of thin air. When all that new money poofs into existence, the other currency in circulation becomes less valuable. That could hurt consumers, who are already dealing with price inflation.
Then there's the question of what a $1 trillion coin would mean for US monetary and fiscal policy. Monetary policy means making decisions about the money in the economy. That's mostly left up to the Fed, which is somewhat insulated from political tinkering. Fiscal policy means making decisions about what the government spends money on. That's an entirely political process left up to Congress and the president.
The $1 trillion coin would completely mix the two. It would have the president use monetary policy (creating new money) to solve a fiscal problem (the government is running out of borrowing capacity). Treasury Secretary Janet Yellen said Tuesday that such a move "compromises the independence of the Fed."
What would the $1 trillion coin look like?
It's not really important, because the coin would never see the outside world. This is a coin that would be minted by the Treasury, then immediately deposited into the Fed. It is not going to circulate, as its sole purpose is to inject more money into the federal government's accounts, and to keep government operations rolling apace.
There have been some suggestions over the years, though.
Coin designer Garrett Burke, who created the 2005 John Muir Yosemite California State Quarter, told "Marketplace" in 2013 that the coin should feature one of the world's most prolific financial criminals.
"There's no one person of the American government that I could say could represent it. There is only one person I could say that could represent it, and that person is Charles Ponzi," Burke said. "Or you could drill a hole in it, and that could be the hole that all the money is falling."
Ponzi in the 1920s made famous a massive fraud scheme in which investors are paid profits with money from subsequent investors. It's the same type of scheme Bernie Madoff perpetrated to the tune of $68.4 billion.
When will the US government run out of money?
The government will run out of money on October 18 or shortly thereafter. When the debt-ceiling suspension expired in August, the Treasury started moving money around to meet the country's obligations. By October 18, the agency says, it will have run out of room to do that.
What do policymakers think about the coin?
Perceptions are mixed, but they mostly speak of it in theoretical terms. White House officials have circulated memos with a range of theories of what to do if Congress does not raise or suspend the debt ceiling. The $1 trillion coin was among the options included in those memos, The Washington Post reported earlier this month, but administration officials dismissed it as unworkable. The majority of Democrats in Congress appear to agree, but Republicans Jerrold Nadler, D-N.Y., and Rashida Tlaib, D-Mich., have both advocated for the coin.
But Yellen told CNBC that the coin was a bad idea.
"I'm opposed to it and I don't think we should consider it seriously. It's really a gimmick and what's necessary is for Congress to show that the world can count on America paying its debts," Yellen said.
"This is equivalent – the platinum coin is equivalent to asking the Federal Reserve to print money to cover deficits that Congress is unwilling to cover by issuing debt. It compromises the independence of the Fed, conflating monetary and fiscal policy. And instead of showing that Congress and the administration can be trusted to pay the country's bills, it really does the opposite."
What are alternatives to the $1 trillion coin?
The easiest thing would be for Congress to raise the debt ceiling, but Senate Republicans are digging in. Raising or suspending the debt limit requires 60 votes in the Senate to defeat a filibuster. That means 10 Republicans need to vote with Democrats on the measure. But Republicans are blocking Democrats from proceeding – even though raising the debt limit is generally a routine and bipartisan affair.
Another alternative under consideration is for President Joe Biden to simply keep borrowing money and paying the country's bills even if the government is not supposed to take on more debt, The Post reported last week. The debt ceiling, some legal scholars claim, conflicts with the 14th Amendment to the Constitution. Section 4 of the amendment states: "The validity of the public debt of the United States . . . shall not be questioned."
In other words, it is simply unconstitutional for the US to default on its debt. However, it is also unconstitutional for the president to defy a law passed by Congress.
"They would have two choices, each of which is unconstitutional," one of the people aware of the administration's discussions said. "This is the theory of the 'less constitutional choice': If the president did this it would violate the Constitution, but to not do it would violate the Constitution even more seriously."
The Washington Post's Jeff Stein, Tyler Pager and Tony Romm contributed to this report.