This is interesting, so let's talk about it.
So now that this Fiscal Cliff bullshit is over with (kinda), we get to hear about two new issues:
1) The sequester (which is really a continuation of the FC drama), and
2) The Debt Ceiling!!!!
I'm here to talk about number two (although a sequester discussion shouldn't be avoided here), but more specifically about a topic that has been buzzing around the media recently: The Trillion Dollar Coin.
What the hell is the trillion dollar coin?
It's exactly what it sounds like: a coin with a trillion dollar denomination. It's an option the Obama administration can take during the debt ceiling negotiations. Well, actually, it sounds like there won't be any negotiations to begin with. This, of course, bring us down one road: a government shutdown.
Oh, kind of like the one we had during the Clinton administration, right?
No, actually, this one would be different. Technically, we already hit the ceiling on New Year's Eve; the Fiscal Cliff fiasco did not address this fact. However, Geithner implemented the so called "extraordinary measures". What those measures include is kinda technical and dry, so I won't bore you with it (the article briefly touches upon some examples if you're curious), but the real issue here is when those measures run out: around February 28th. Approximately the same time the extension of the sequester cuts expire. This isn't a coincidence.
The biggest difference is that the deadline for the expiration of the extraordinary measures is completely different. The shutdown during Clinton occurred before the point where the Treasury's extraordinary measures ran out. The government shutdowns were from November 14, 1995-November 19, 1995 and December 16, 1995 - January 6, 1996, with the Treasury stating that the extraordinary measures would run out around March 1, 1996. The government shutdown we're seemingly headed for in March is after the extraordinary measures run out. If the shutdown occurs, this one would be nasty: major government services (e.g. Social Security payments, Medicare reimbursement, federal paychecks) are stopped.
Because of the risk of a technical default, where we fail to pay out the treasuries that comprise our debt. During the shutdown, the government would be operating only on the money it takes in via taxes since there are no extraordinary measures to help keep things afloat. We would be prioritizing our payments, and our top priority is servicing our debt. If we fail to pay it, then that's "defaulting," and the consequence of that on the global market would be on a scale we've never seen before. This means we would stop paying for things deemed less important than that, which includes a lot of stuff. So there's no default, but grandma doesn't get her SS check, anyone on the government payroll doesn't get a check, anyone owed money by the government for goods and services doesn't get paid, etc. That's bad.
So, how does this trillion dollar coin come into play?
To understand that, we need to go back to the coin itself and how it comes about. There is a sort of loophole which essentially authorizes the Secretary to print platinum coins without restriction. This means specifically platinum coins can be minted in any denomination. Hence, the trillion dollar coin: this is legally permissible.
How this plays out during the shutdown is simple: the debt ceiling affects the Treasury department, which sells T-Bills to raise cash. Once the debt ceiling is hit (or in this case, when the extraordinary measures run out), Treasury can't do it any more. So, the Treasury mints the coin. The Treasury then deposits the coin at the Fed. The Fed (which is part of the US Government) then credits the Treasury's account for $1T. The Treasury now has $1T, and viola! Crisis averted! So, in essence, the coin is simply an accounting trick.
So, what do you guys think about this? Do you think it's a good idea? I can happily answer any questions about it, since it's kind of a dense issue.