Sometime after Memorial Day, the U.S. could very well go bankrupt.
Economists for years have been warning about this possibility. The U.S., they note, has long been spending more than it harvests in taxes and fees. That imbalance has left us with a national debt of $31 trillion, or more than $90,000 for every man, woman and child in the country.
Relax. That’s not as scary as it sounds. Like nearly all countries, the U.S. funds fiscal deficits by issuing bonds and promissory notes. We have the world’s biggest debt, but also the largest economy and the best credit rating. So, our interest payments are relatively mild. Currently, only 2 percent of total federal spending is needed to cover them.
At that level, we could run deficits for quite a while without serious consequences.
Last week, though, we bumped up against something called the debt limit. That decades-old statutory ceiling limits the total amount the federal government can borrow.
The Treasury Department has begun shifting money around to put us back under the limit. But that’s a temporary fix. As of June, the government probably won’t be able to issue any new debt.
If that happens, the U.S. will likely lose its gold-plated credit rating, and the value of our existing debt on world markets will plunge. Because the health of Treasury securities affects nearly every tradable stock and bond in the world, the global financial system will be thrown into chaos. Interest rates will soar, along with federal borrowing costs.
Unable to issue new debt, the government may have to stop paying federal salaries, delay Social Security and Medicare disbursements and suspend dozens of other programs. We don’t yet know how many or by how much, since the U.S. has never defaulted on its debt. In any event, it won’t be pretty.
There’s a devilishly clever solution to all this. But first, let’s discuss the obvious one: Raise the debt limit. That’s what Congress has done before, 78 times since 1960, usually without much fuss.
Now, however, the new Republican majority in the House of Representatives, where spending-related bills originate, has decided to weaponize the debt limit. As a condition for raising it, the GOP wants President Biden and congressional Democrats to accept future spending cuts. They, in turn, say that’s blackmail, and to hell with it.
So, what’s a country to do? Here’s the clever solution: The U.S. could mint a single platinum coin with a face value of $1 trillion — not to spend, but to deposit in the Treasury. That would automatically put the U.S. safely under the debt limit. And when that’s no longer sufficient, just mint a new coin.
Why platinum? Supporters of the minting option note that Pt (platinum’s symbol in the periodic table) is lustrous, malleable, ductile and, for most of history, more expensive than gold. Platinum is rarely used for legal tender but is popular in commemorative coins.
There’s another, more realistic solution to the looming crisis. The president could simply ignore the debt ceiling and announce what’s increasingly obvious: It serves no real purpose and could cause America vast harm. No other country has one except Denmark, where the limit is so high it’s irrelevant.
Besides, some scholars say, the U.S. debt limit is unconstitutional. Section 4 of the 14th Amendment bars Congress and presidents alike from undermining “the validity of the public debt of the United States, authorized by the law.”
Republicans do have a point about getting spending under control. There are sensible measures to do that, including changes to how Social Security and Medicare are funded, the restoration of recent tax cuts and the closing of various tax loopholes. Also, investing in health, education and environmental sustainability, which would reduce demand for many federal programs.
But such things should be handled in the proper way, through the appropriations process, not with threats to default on past debt — at least half of which was added under Republican presidents.
Let’s face it: Refusing to raise the debt limit is nothing more than a political gimmick. That’s why I like the idea of responding with a numismatic gimmick. Sure, Treasury Secretary Janet Yellen last week said minting a trillion-dollar token is highly unlikely, but I wouldn’t rule it out — if only for the symbolism.
Platinum currently trades on commodities markets at about $1,030 an ounce. So, a coin made of the stuff would have at least some intrinsic value. Holding the American economy hostage has none.