The Fed could wipe out a trillion dollars of debt if the Treasury Department would just mint a single platinum coin.
Before the ink dried on the fiscal cliff deal, the next crisis sure to send Washington into partisan gridlock has emerged: Debt Ceiling 2.0. But there's a movement afoot for a suspiciously simple -- albeit a little wacky -- solution to end the debt ceiling debate: The trillion-dollar coin.
Yes, you read that right. It might be crazy, but some liberal lawmakers and economists are discussing a plan for the federal government to use a legal loophole to mint a platinum coin worth enough money to cover the nation's debt.
"It sounds silly, but it's absolutely legal," Rep. Jerry Nadler, a Democrat from Staten Island, told Capital New York. "And it would normally not be proper to consider such a thing, except when you're faced with blackmail to destroy the country's economy, you have to consider things."
The concept of a trillion-dollar coin was first proposed last July by a commenter at Pragmatic Capitalist and has slowly been gaining steam since. Business Insider and the American Enterprise Institute were touting it in December, and just last week it was bandied about by Bloomberg News. Liberal economist Paul Krugman at The New York Times is warming to the idea. There's even a White House petition with more than 6,000 signatures and a Twitter hashtag, #mintthecoin.
So how is this legal?
The Coin Act of 1792, like many of our laws, is both very specific and vague. It offers weights, measures, design and denomination requirements for all manner of coins, as well as rules pertaining to silver and gold. But section K offers a theoretical loophole big enough for President Obama -- with some help from Treasury Secretary Tim Geithner -- to walk right through:
The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.
"That reads to me like the Treasury Secretary could do it, " said Mark Calabria, Director of Financial Regulation Studies at the Cato Institute and a former staffer on the Senate Banking Committee under Republican Sen. Richard Shelby. "I would say that Treasury could do it without Congress."
So why would it be necessary?
In short, Congress has approved more spending than revenues, creating debt and forcing the government to borrow money. But federal law limits the amount of money it can borrow. When the government's debt hits that limit, it would no longer be able to pay off obligations, and it could impact many federal services.
Geithner has already enacted emergency measures to avoid hitting the ceiling, but he says that will only delay the inevitable until February or March.
Traditionally, when the federal government approaches the debt ceiling, Congress just raises the limit. But Republicans made the debt ceiling an issue last summer, and have vowed to do it again, saying that they will not raise the limit unless President Obama agrees to a trillion dollars in spending cuts.
Which brings us back to the coin. The U.S. Mint can create a platinum trillion-dollar coin and present it to the Federal Reserve, decreasing the debt to a level below the ceiling.
It's the ultimate end-around for President Obama: He can just ignore an issue that Republicans have promised to turn into a bruising battle.
Congressman Greg Walden, an Oregon Republican, has announced plans to introduce a bill to close the loophole in the Constitution that makes the coin a possibility. Walden admits he's unsure about the legality of the coin, but he wants to cover his bets.
"I'm taking it at face value that the authority is there to allow the minting of a trillion-dollar coin, and that shouldn't be allowed," Walden told Business Insider.
It doesn't appear that anyone actually wants to do this, inside the Obama administration or outside. Last summer, some Democrats urged Obama to use another loophole to avoid the debt ceiling debate. They pointed to a provision in the 14th Amendment that says the U.S. must always pay its debt, arguing that Obama could challenge the constitutionality of the debt ceiling.
That time, he skipped the end-around, instead choosing to negotiate with Republicans.
Still, additional options could give the White House leverage in the contentious debate.
Even if it's just a threat, Isabel Sawhill, an economist at the liberal-leaning Brookings Institute, can't be bothered to wrestle with the legality of the issue.
"I just can’t take that idea seriously, and I don’t think the administration would take it seriously," Sawhill said. "Whatever your opinion of this administration, it's not a whacko administration.
"Obama himself is already sending lots of signals is that he's not going to negotiate on the debt ceiling. The reason he's saying that -- though I'm not sure he can avoid negotiating over it -- is because the whole idea is kind of whacko, and this coin idea is double whacko."