Plan to Avoid Debt Ceiling: Trillion Dollar Coin Vetoed by White House

By Gretchen Wegrich

The Obama Administration has clearly denied that the much-hyped trillion dollar coin, a proposal which gained a serious following in the blogosphere last week as a ‘magic’ solutuion to the debt-ceiling crisis, was under serious consideration.

The White House released a statement on Saturday saying that there were “two options” for facing the immediate need for government payoff of creditors for federal funding that has already been spent. Of these two options, minting a trillion dollar coin in order to sidestep an imminent fight with Capitol Hill did not make the list.

“Congress can pay its bills or it can fail to act and put the nation into default,” wrote White House Press Secretary Jay Carney in the statement.

Partially to blame for the current crisis, according to Carney, are Congressional Republicans who stalled 2011 talks over the country’s borrowing limit, leading to a downgrade in Standard and Poor’s U.S. credit rating.

The release also included a clear call to action directed at the Republican Congress: “The President and the American People won’t tolerate Congressional Republicans holding the American economy hostage again simply so they can force disastrous cuts to Medicare and other programs the middle class depend on while protecting the wealthy. Congress needs to do its job.”

For several months, the Treasury Department has preventing actual reaching of the debt ceiling through creative accounting. After fiscal cliff negotiations failed to produce any real solution, lawmakers predicted a late-winter battle over how to avoid reaching the $16.4 trillion borrowing limit.

Following the fiscal cliff ordeal, the idea of minting a trillion dollar coin was championed by financial bloggers and liberal-progressive economists, including Pulitzer Prize winning economist Paul Krugman, a New York Times columnist.

According to those in favor of minting the coins, a trillion-dollar mark could be used to repay debts in the case that new debt-avoiding legislation stalls in Congress. The Federal Reserve would keep the coins until the debts became due.

Existing laws regulate the amount of paper, gold, silver and copper currency can be in circulation, but platinum is not including in the regulations. 

The White House’s clear denial of any real consideration of minting trillion dollar coins follows Senate Majority Leady Harry Reid and democrats urging of President Obama to pursue “any lawful steps” to prevent default, “without Congressional approval, if necessary.”

Republican Leader Mitch McConnell answered with a written statement, in which he called the trillion dollar coin “ridiculous” and an “outright abdication of Congressional responsibility.” He finished by stating, “Avoiding this problem will only make it worse.”

A senior official inside the Obama Administration reiterated the administration’s clear rejection of the trillion dollar coin solution when he stated that the Federal Reserve “wouldn’t view the coin as viable. The issue isn’t not wanting to do the coin. We just can’t.”  

Therefore, the real problem isn’t whether or not the trillion dollar coin could actually solve the debt-ceiling crisis. The coin is simply not a viable solution.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.