Playing chicken and crashing the economy over the debt ceiling sounds fun—if you’re a couple of daredevil political parrots. Each just wants to fault the other for the default. Each wants the other to scratch their own earmarks. Welcome to Puzzle Drop Monday.
There are three ways out of the debt default mess; a last-minute agreement, invoking the 14th Amendment, and this week’s puzzle—should we mint a $Trillion coin? More on the coin after this. If you are already up to speed on macroeconomics, the debt, deficits, and how money works, skip down to THIS WEEK’S PUZZLE.
Why Care?
A Debt Default…
Debt default happens when a country fails to make payments on its national debt.
A debt default would shake financial markets and erode trust, setting off a chain reaction of economic woes both at home and abroad. It would drive up interest rates, lower credit ratings, and deter investment, making future loans more expensive and hampering economic growth.
Essential services like healthcare and education could face drastic cuts, sparking public unrest and lowering quality of life. The ripple effects could even strain global relations and destabilize regions. For more details, see the end of this article.
…Or a Government Shutdown
A government shutdown over the debt ceiling occurs when lawmakers can’t agree on borrowing limits,
leading to a temporary halt in many federal operations.
A government standoff disrupts essential services and creates economic uncertainty, impacting government workers, contractors, and the public alike. It halts federal programs, delays payments, and risks damaging the country’s credit, making future borrowing more costly.
The deadlock erodes public trust, stifles economic activity, and often devolves into political finger-pointing. The long-term fallout can take months or even years to recover from fully, making such shutdowns a high-risk political and economic gamble. For more details, see the end of this article.
A Trillion Dollar
Coin, Really?
The constitutional basis for the Treasury’s seignorage power to mint coins stems from Article 1, Section 8, Clause 5 of the U.S. Constitution, which gives Congress the power:
“To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”
This clause provides the legal foundation for Congress to delegate authority to the U.S. Treasury to mint and print money.
Unlike the useless penny, or nickel for that matter, the trillion dollar coin is a very useful way to fix the Federal Reserve’s balance sheet.
The coin isn’t worth a trillion dollars in metal just like a paper dollar isn’t worth one dollar of paper. Only Congress can spend money. The Federal Reserve is where dollars are born like when banks make loans and where dollars die when you pay your taxes.
Thirteen Keystrokes
If the Treasury deposited a trillion dollar coin ($1,000,000,000,000) at the Fed, then thirteen keystrokes would be made on a computer, and the Fed could continue paying the county’s bills and interest to the bondholders. With fourteen keystrokes the Fed could buy back all the debt and save on the interest payments.
The World Yawned
What kind of crisis is caused by people fighting over 13 keystrokes on a computer? When the US went off the gold standard in 1971, the world basically yawned. Why would this similar solution be any different? Keep in mind we have the world’s largest military, and most nations want to stay on our good side.
Is there a Debt Crisis?
The average US household has a net worth of $750,000. The average household debt is $100,000. So that’s a $100,000 / $750,000 or 13% debt to net worth.
The US total net worth is $150T. The debt is $33T, but $7T is intergovernmental, so $25T is owed to others. So, that’s $25T/$150T or 17% debt to net worth.
Does this sound like an emergency so dire as to risk the full faith and credit of the United States of America and risk the dollar losing world currency status?
A household can’t issue its own currency to pay bills.
Also, let’s bear in mind the US is not like a household, meaning a household can’t print currency. The US has a military, weapons, jails, and leverage. The US is the monopoly issuer of net financial assets. Net, because banks can also issue currency, but they have to pay it back to the Fed. The US doesn’t have to pay itself back. It’s a book entry. You can’t spend a net dollar until the US spends it into existence. When you pay your taxes, the money is destroyed, and a number changes on a computer balance sheet.
To pay down the debt the US has to run surpluses. The only problem is US government surpluses cause depressions.
In 1817, 1852, 1867, 1880, 1893, 1920, 1928, 1998-2001 the US government briefly ran rare budget surpluses, which were followed in short order by major economic crises – the Panics of 1819, 1857, 1873, 1893, and the Depressions of 1921 and 1929, and the Great Recession of 2008 (delayed by the sub-prime lending fiasco). The Great Recession was technically a Depression with 15% U-6 unemployment.
Causation or Correlation?
The four schools of economics will likely not agree on whether the rare surpluses caused the rare depressions but come on, 8 times in a row, and over 200 years, really?
Could there have been other factors that forced the surpluses that caused the depressions? Sure, but how come no one can explain that so a precocious 12-year-old can understand it? Isn’t insanity doing the same thing over and over again and expecting a different result?
The Four Schools of Economics
Models don’t need to be perfect. They just need to be useful. The entire field of economics is based on a falsehood, homo economicus, the rational human. We now know that humans are emotional beings who think.
The Four Schools are Surpluses (save for rainy days), Hayekian (small government and balanced budgets), Keynesian (borrow in bad times and pay back in good times), and Modern Monetary Theory (not all deficits matter).
Some Hayekians are predicting a depression in the 2030s when the debt service and healthcare costs will become too big.
THIS WEEK’S PUZZLE
Should the US mint a trillion-dollar coin
to avert a debt default?
The US Treasury has the right to mint coins for the county’s use. No denominations are discussed. It’s called seignorage. If a trillion-dollar coin were minted and deposited at the Federal Reserve, then the debts and obligations of the US Government could be paid.
The US has been off the gold standard since 1971. The only thing backing the dollar since then was the full faith and credit of the US government. Since, arguably, the US is still the only world’s superpower and its biggest economy—so far so good.
ONE PARROT spends and lowers taxes but caps government debt which threatens bond defaults on loan payments to limit the other parrot’s spending.
THE OTHER PARROT spends and continues borrowing to pay for the things it unilaterally decides the US needs.
To avert a catastrophic debt default the Treasury could mint Trillion Dollar coins and deposit them at the Federal Reserve Bank, and the US can meet its debt obligations.
Four Ways to Engage
PolicyKeys
Here’s the PLAN: For you People-people you can enjoy the real-life political role-playing at PolicyKeys.com. Sit awhile in each role’s chair, and decide whether a majority of people in that role would be for or against the solution. Empathy is power. Excellent for classroom engagement.
For you Letter-people we publish daily on this Super Nonpartisan Public Policy Blog. It’s like the color commentary on the big game. Or a juicy menu to order up your favorite solutions. Check out the US Public Policy Leaderboard (US-PPL) update every ‘Us People’ Sunday.
For you Abstract-people, we’ve invented a nonpartisan scoring system to include 128 roles, four laws of public policy formation, two levels of pattern-seeking AI, forecasting science, and a treasure hunt for the highest-rated solution to every public policy puzzle. We are open to public and/or private sector solutions.
Four you Numbers-people, all our solutions add up in the POL-ICYMI Key for last week’s puzzle. What stats are to baseball, PolicyKeys is to Public Policy.
Expanded
Reason Key
For you avid role-players here’s more information for each of the Key YES and NO reasons from this week’s puzzle on PolicyKeys.com.
Key Reasons to Say ‘NO’
“Step Away From the Computer”
2. Might destabilize $ on foreign markets
The value of the dollar might decrease causing trade uncertainties.
4. May cause trade wars
The trillion-dollar coin risks sparking trade conflicts with economic competitors.
6. May cause real wars over resources
The new financial muscle might provoke resource-based confrontations with other nations.
8. May increase inflation
An influx of cash into the economy could fuel inflation, eroding consumer purchasing power.
10. Minting risks world reserve currency status
Such a bold move endangers the dollar’s role as the global reserve currency, inviting international skepticism.
12. Other countries might follow suit
If the U.S. proceeds, other nations might adopt similar fiscal measures.
14. Speeds obsolescence
The surge in innovation could accelerate the phase-out of older technologies and jobs.
16. Greening America causes inflation
Investing heavily in green tech may drive up costs, stoking inflation.
MORE KEY ‘NO’ REASONS
18. Funny money risks the world order
The coin gambit could disrupt the existing global financial structure, leading to instability.
20. Yuan or Euro could dethrone the $
Alternative currencies like the Euro or Yuan could capitalize on the uncertainty, challenging the dollar’s dominance.
22. Debt default is a useful tactic
Some argue that the threat of default serves as a useful negotiation chip, albeit a risky one.
24. Controversy breeds profits
Certain businesses benefit from uncertainty and controversy.
26. The debt is worrisome
Despite the immediate fix, the national debt remains a looming concern.
28. Countries cornering commodity markets
The move may lead to nations manipulating commodity markets, causing trade instability.
30. May need more immigrants
This strategy could increase the demand for labor, requiring more immigrants, which carries its own set of issues.
32. May increase government interventions
The trillion-dollar coin could lead to increased government interventions in various sectors, for better or worse.
Key Reasons to Say ‘YES’
“Money is Just Keystrokes”
1. $ value might increase on foreign markets
A book entry at the Fed will alarm our trading partners less than a debt default.
3. With our armed forces we do as we please
Armed with a strengthened economy, America’s military might will gain even more leverage.
5. Congress still controls spending
Lawmakers maintain their gatekeeper role, keeping a check on how the tranche is spent or saved.
7. Keeps taxes low
This maneuver could keep taxes low, encouraging consumer spending and investment.
9. Defaulting risks reserve currency status
Avoiding default protects the dollar’s world reserve currency status, ensuring global financial stability.
11. Bakes a bigger apple pie to share
A more robust economy allows for more equitable wealth distribution, benefiting all citizens.
13. Will spur a wave of innovation
The infusion of capital could trigger groundbreaking innovation across various sectors.
15. A way to pay for the green revolution
The trillion-dollar coin offers a feasible way to fund urgent climate initiatives.
MORE KEY REASONS TO SAY ‘YES’
17. The last default threat cost the US $19B
Avoiding a scenario like the previous $19 billion default threat shows the urgency of finding a solution.
19. Could spur economic development zones
The additional capital could revitalize neglected regions through economic development zones.
21. More generous foreign aid
The newfound affluence could enable more generous foreign aid, enhancing America’s global standing.
23. Better STEM schools & pay for teachers
Increased funds could significantly improve STEM education and teacher salaries, ensuring future competitiveness.
25. China heavily supports its industries
The move levels the international playing field, especially against countries like China that heavily subsidize their industries.
27. Less crime because of more prosperity
A booming economy often correlates with lower crime rates, creating safer communities.
29. May need more immigrants
The ensuing economic growth may require a larger labor force, creating a demand for more immigrants.
31. It’s just digits on a computer
Ultimately, the trillion-dollar coin is merely a digital book entry on a balance sheet.
What would likely happen if the US had a debt default?
A US debt default would probably lead to:
A. Spiking interest rates as US Treasuries lose their reputation as one of the world’s safest assets. This would increase costs for mortgages, car loans, business borrowing, and more. (High-interest rates are welfare for the rich.)
B. Stock market crashes and financial turmoil as investor confidence plummets in the stability of US markets. Retirement accounts would be hit hard.
C. Downgrade of US credit rating making future borrowing for both public and private institutions much harder.
D. Collapse of the US dollar as the global reserve currency, disrupting global trade.
E. Potential banking crises and runs on banks as faith in the financial system evaporates. This happened partially in the 2011 downgrade.
F. Reduced economic growth from higher costs of capital and low business/consumer confidence. Could cause a deep recession or even depression. It usually takes 5 – 10 years for the middle class to recover.
G. Problems paying government obligations like Social Security, Medicare, veterans benefits, and more if enough funds can’t be raised.
H. Significant inflation like when the Fed closed the discount window and drove interest rates over 20%.
I. Higher unemployment from reduced economic activity.
J. Global financial contagion as effects spread abroad to economies linked with the US.
In essence, a loss of full faith and trust in US debt and the dollar could create enormous financial turmoil and economic damage. The impacts would likely be severe and widespread.
How about if the
Government shut down?
K. Disruption of Social Security payments and services. Delays accessing earned benefits.
L. Interruption of Medicare claims processing and coverage. Seniors may lose access to covered care.
M. Suspension of Medicaid, CHIP, and ACA exchange funding. Low-income residents lose health coverage.
N. Cuts to federal food assistance programs like SNAP and WIC. Reduced support for disadvantaged families.
O. Loss of federal education funds for local public school districts. Harms programs aiding poor students.
P. Stoppage of federal highway funding to states. Major infrastructure projects halted. Democrats and Republicans both hate potholes.
Q. Interruption of federal law enforcement grant programs. Hurts local police and safety initiatives.
R. Closure of national parks, monuments, and public lands to visitors.
S. Backlogs processing passports, visas, and travel documentation through the State Dept.
T. Suspension of CDC and FDA routine health monitoring and consumer protection activities.
You can Role-Play
the Puzzle at PolicyKeys.com
Methodology
We search for solutions with the highest hypothetical nonpartisan rating. Something that would solve 80% of the problem with the simplest 20% solution.
Then we search the eight Information Walls for Key YES and NO Reasons, no cherry-picking.
The Key Reasons are sorted using our EMIT format, Emotions, Money, Information, and Timespan. We search for the key signals in the political noise.
Key Reasons can look similar so we edit for redundancy and look for errors, omissions, and innovations.
We look to filter out the GRIFTERS; Gaslighting, Red-herrings, Idolizing, False-dilemmas, Tunnel-vision, Exclusions, Reductions, and Straw-man arguments.
Birds of a Feather AI
Once the Key Reasons are set, we prescore the puzzle using the “Birds of a Feather AI” for loose ties to beliefs, attitudes, values, and ethics. Over 16 million combinations are possible for the 128 roles. The game board starts balanced at zero, with an equal bias for change and the status quo.
We then prescore the puzzle using 56 arch-type roles that embody each of the 56 loose ties the best. This yields a general bias for change and the status quo and reveals ties for all 128 roles.
The editors review all 128 roles for specific reasons and overrule the AI where necessary. These are noted in the Tuesday Tiebreaker article.
Then, we score the puzzle on all four sides of the Political Table: eight Information Walls, sixteen Subcultural Windows, sixteen Bias Columns, and sixteen Influence Rows.
SAT9 AI
When the scoring is done, the AI looks for inconsistencies using the SAT9 AI filter. This is 256 ‘supreme courts’ where each role is the chief justice in a presumed 5-4 and 4-5 bench. This generates a ± error margin.
This is all done on a One Page Narrative Tool (OPNT) that we gamified for role-playing at policykeys.com. We call our AI, POLI for Political Omnibus Leadership Initiative.
You can read more about PolicyKeys™ in the upcoming book, Politics 4.0: How Gamification, AI, and National Idea Leaderboards Can Help You Depolarize the World. The Observatory of Public Sector Innovation (OPSI) at the Organization for Economic Cooperation and Development (OECD) has recognized PolicyKeys™ for digital engagement.
The Weekly Puzzle
A new PolicyKeys™ Where Can We Agree?® puzzle drops every Monday at 7 a.m. Eastern at PolicyKeys.com.
PolicyKeys™ Where Can We Agree? is a real-life role-playing game. Each week, there are sixteen sets of eight ‘rival’ roles. Sit awhile in each of their eight chairs and predict whether a majority of people in those roles would say Yes or No to the week’s question.
The best ideas land on the US Public Policy Leaderboard (US-PPL) if a majority of each of the four sides of the political table agree. You can play this week’s puzzle at PolicyKeys.com.
Anthem
Where Can We Agree? (Why Don’t You Want To Know?)
You can play this week’s puzzle at PolicyKeys.com.
Fly Higher
U.S. Code 5112 Denominations, specifications, and design of coins
Cornell Law School
Averting a Debt-Ceiling Disaster
Project Syndicate
Federal Net Interest Costs: A Primer
Congressional Budget Office
One Neat Trick to Raise the Debt Limit
Bloomberg
Trillion Dollar Coin Could Be the Least Bad Option
The Atlantic
The Fed Dismisses the Trillion Dollar Coin
WSJ
Pros and Cons of the Trillion Dollar Coin
The Week
A $1 trillion platinum coin could save the US
Business Insider
Trillion-dollar platinum coin could be minted at the last minute
Axios
The Hidden History of the Trillion-Dollar Coin
Reason
The Trillion-Dollar Coin Idea is Just Another Way to Rip Us Off
Mises Institute
Meet the Genius Behind the Trillion-Dollar Coin
Wired
US Dollar Index – 43-Year Historic Chart
Macrotrends
It takes guts to see things from all four sides of the political table
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