The U.S. government avoided a shutdown on October 1st with a continuing budget resolution now set to expire on December 11th. Then Treasury Secretary Jack Lew announced a deadline that was even sooner: unless Congress takes action on the debt ceiling by November 5th, the government could shut down or default at that time.
This Congress-created showdown may be resolved between now and then, but these few weeks of uncertainty provide an opportunity to review the numerous misconceptions about debt and money creation, and to consider potential improvements to the monetary system. At the heart of the matter is whether society will have enough money to solve the problems we face as a nation and planet.
Some people believe the national debt is a serious problem. They argue that we are spending beyond our means and leaving unacceptably high bills to be paid by our grandchildren. But this is based on an incorrect metaphor. A sovereign nation is not a household. Instead, according to the UK group Positive Money, a sovereign nation can just declare "let there be currency," spend it directly into circulation, and avoid the need for bank-issued debt. The national debt, in this view, is simply an accounting mechanism that explains how much money is in circulation, and is not something to fret over or worry about burdens to future generations. In fact, fiscal conservatives' goal of paying down and retiring the national debt would take money out of circulation, causing an economic contraction and impoverishing people.
Even so, there are plenty of harmless technical solutions to the national debt (if you still consider it a problem). For example, since a large part of the national debt, in fact, is "debt service," in which the U.S. Treasury pays interest on securities held by the Federal Reserve, Congress could allow the Federal Reserve to retire those U.S. Treasury securities instead of letting interest on the debt continue to accumulate. Or Congress could allow the Treasury to spend money into circulation directly, or use debt-free instruments in its money creation process.
One such instrument is the trillion dollar platinum coin. The idea of the trillion dollar platinum coin emerged during the previous debt ceiling debate in 2013. A legal loophole allows the U.S. Treasury to mint a high value (trillion dollar) coin, and deposit it at the Federal Reserve, where the Treasury's account would be credited, allowing government borrowing to continue. Austerity-driven politicians tried to dismiss the coin as a joke, but it received some attention from serious economists including Paul Krugman and others.
If the debt ceiling causes a default or government shutdown and becomes a campaign issue in the 2016 election, there are some signs that the coin could be taken seriously by the Democratic front-runners for president. Before he became a candidate for president, Vermont Senator Bernie Sanders hired one of the premier experts in Modern Monetary Theory (MMT), Professor Stephanie Kelton, for his Senate Budget Committee staff. Dr. Kelton is said to be the originator of the hashtag #MintTheCoin, which was trending during the debt ceiling debate of 2013. On the Hillary side, a recent article in Vox argues that former Secretary of State Hillary Clinton is less averse to powerful though controversial moves that confound her adversaries (the article use the impolitic term "Hillary Clinton DGAF"). The article speculates this trait could make her open to implementing ideas like the coin.
The coin's ability to circumvent austerity budgets may be required for ambitious government action on climate change. The UN climate change conference in Paris this December is ostensibly about climate change, but under the green mantle it is really an economics conference. Climate change is a symptom of an out-of-control, carbon-addicted economic system. One of the rallying cries for NGOs heading to Paris will be "leave the fossil fuels in the ground."
But what will happen to the economy if a major input to economic growth, fossil fuels, becomes limited by a global carbon cap? In a debt-based monetary system without growth, the debt will outpace the ability to pay, and default becomes inevitable. New forms of money designed for a carbon-constrained world will need to be created. The trillion dollar coin could be a first step toward ecological monetary reform.
Permits representing emissions under an economy-wide cap could be sold to fossil fuel companies. The revenues generated could be returned to people as a climate dividend. This could be the first part of a universal basic income , and could be supplemented by other policies such as quantitative easing for the people.
Because oil prices are so low right now, oil companies and OPEC could potentially benefit under a carbon cap that allows them to charge more for their product. However, this system, called Cap & Share, would be organized by a Global Climate Trust, and would return that scarcity rent to the people.
The debt ceiling may be back in the public discourse in early November and perhaps into 2016, raising questions about monetary reform, sustainability, and austerity versus prosperity. The existing debt-based monetary system may not be compatible with a carbon-limited economy. Luckily, the monetary system is created by humans and it can be changed by humans. The debt ceiling debate is mostly a waste of time, but perhaps the one benefit is it provides the opportunity to discuss the trillion dollar coin as a teaching tool for ecological monetary reform.