It's time to talk more about realistic alternatives to minting a trillion-dollar coin to get around the debt ceiling.
While it's easy to appreciate the trillion-dollar-coin idea as an intellectual exercise and a highly successful troll of the Washington establishment, and maybe even as a teaching moment in policy making, at the end of the day it doesn't stand a chance of happening. So there comes a point when some of the should-we or shouldn't-we debate starts to drain energy from thinking about what could actually be done to avoid a catastrophic breach of the debt ceiling.
That's why it was nice to read the Economist's Greg Ip proposing a still-minty alternative to the trillion-dollar-coin idea: The Treasury can mint coins, according to his theory, but a bunch of coins in smaller denominations than $1 trillion.
And instead of walking the coins over to the Fed, which may or may not want to be involved in such a scheme, Treasury would sell those coins to the public with a promise to buy them back later. Investors looking for relatively safe assets could buy these, giving Treasury cash in return, which Treasury could use to pay its existing debts.
These coins would be like Treasury bonds, but in coin form. This is pretty much the same mechanism -- seignorage -- as the trillion-dollar coin idea, but with the extra-crunchy free-market goodness that might win over some on the right. It's a little closer to the original intent of the law that makes minting platinum coins possible. And it looks a lot less like the Fed is just enabling the government to run up its debts (which it wasn't doing anyway, but the optics looked like that).
CNBC's John Carney, who has repeatedly thrown cold water on that the trillion-dollar coin idea, even expressed limited approval for Ip's idea.
If you're still not sold on the coin idea, then maybe the idea of government IOUs might interest you. Matthew Yglesias at Slate proposed this idea last month, the government handing out IOUs instead of cash or bonds and making good on them when the debt-ceiling fiasco ends, or the world ends, in which case the IOU problem is solved forever!
In an op-ed in the New York Times this morning, Southern Cal law professor Edward Kleinbard takes up the IOU idea, calling it an "escape hatch" from the debt ceiling and posing it as an alternative to the trillion-dollar-coin solution:
Recipients of these I.O.U.'s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.
The scrip would not violate the debt ceiling because it wouldn't constitute a new borrowing of money backed by the credit of the United States. It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay.
Like Ip's coins, these IOUs could be bought and sold, Kleinbard suggests, which would make them more interesting to investors and more useful to the people who get them. I'm not sure how that's going to work, exactly: It seems a little impractical to expect government employees to be able to sell their IOUs to Wall Street quickly to raise cash. But theoretically that's what they could do.
This solution has the added benefit of having been used successfully before, by California in 2009, which makes it possibly more palatable to those who oppose the trillion-dollar coin because it sounds like something that's only been seen before on The Simpsons.
Do either of these alternatives stand much of a chance of happening? Probably not a whole bunch more than the trillion-dollar coin does. But at least we are starting to come up with a whole bunch of alternatives for President Obama to consider if he needs a way to avoid the debt ceiling.