The US Government is at crossroads as they bid adieu to the current fiscal year and welcome the fiscal year of 2022. It turns out that the United States of America has hit the debt ceiling, and the Congress, within it, has locked horns regarding raising the debt ceiling, which, according to the US Treasury Secretary, Janet Yellen, if not raised, could lead to catastrophic events in the US economy. But why are people in the government anticipating a catastrophe?
The US government, for years, has been spending more than it should. And as even a layman would know, if you spend more than you earn, you will have to borrow money. So, as a result, the US government borrows money from the Federal Bank. This led to the creation of a debt ceiling, which is a limit cap, after which the government cannot borrow even a single penny.
With the beginning of the fiscal year 2022, the Biden-led government came up with an expenditure bill of $3.5 trillion. The bill surfaced a glaring issue, i.e., the debt ceiling, which was set at $28.5 trillion dollars, was surpassed.
Here’s where the crossroad arises.
There are two ways to deal with the issue of breaking the debt ceiling. Either Congress agrees on raising the debt ceiling, which it won’t so as to stop the party in power to introduce the expenditure bill, or the government uses an alternative that, as the economist and noble prize laureate, Paul Krugman, terms, an ‘extraordinary economic gimmick’.
Here’s what it is:
To avoid the difference in discourse in Congress and crossing the deadline for paying the dues, i.e., October 18, the US government can mint a platinum one-trillion-dollar coin to bypass the impasse.
The idea behind minting a one-trillion-dollar coin is based on a loophole in the US law that allows the government to continue expenditure despite reaching the debt limit. In theory, producing this numismatic coin looks like a viable method to avoid economic turmoil. However, in practice, the idea can be the worst idea in such times and can lead to inflation.
This economic trick involves minting a platinum one-trillion-dollar coin and depositing it in the federal reserve. However, the problem doesn’t arise in depositing the coin but spending it.
The US Treasury Secretary Janet Yellen is vehemently opposing the idea of using the gimmick and instead suggests raising the debt ceiling. In an interview with CNBC, Janet said, “I am opposed to it, and I do not think we should consider it seriously. Such a move is similar to asking Federal Reserve to print more money to cover the deficits. It compromises the independence of the federal reserve and the fiscal policy.”
Raising the debt ceiling as the method has been there since its advent in the policy in 1916. Since then, the government has raised the debt ceiling 80 times.
How will the coin be minted
In a recent interview, Philip Diehl, former director of the United States Mint, told Axios that the trillion-dollar platinum coin could be minted “within hours of the Treasury Secretary’s decision to do so.”
The United States Mint, a bureau of the Department of the Treasury responsible for producing coinage as well as controlling the movement of bullion, has no shortage of platinum blanks already in stock, stated the report.
The new production of the trillion-dollar Eagle would require only a denomination change. “This could be quickly executed on the existing plaster mold of the Platinum Eagle,” says Diehl. Then an automated process would transfer the new design to a plastic resin mold.
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Source: News18