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Experts Propose Workarounds to Debt Ceiling Impasse

S.J. Steinhardt
Published Date:
Jan 31, 2023

As the prospect of the United States defaulting on its debt obligations looms due to the possible refusal of House Republicans to raise the nation’s debt ceiling, some economists, lawyers and academics administration have proposed seven possible options, the Washington Post reported.

Minting a one-trillion-dollar coin. This option, which  is technically legal, would entail the Treasury Department minting a new platinum coin, declaring its value to be $1 trillion, then depositing that coin in its account at the Federal Reserve. That would allow the federal government to finance its obligations.

“It truly is not by any means to be taken as a given that the Fed would do it, and I think especially with something that’s a gimmick,” Treasury Secretary Yellen told the Wall Street Journal. “The Fed is not required to accept it; there’s no requirement on the part of the Fed.”

Declaring the debt ceiling to be incompatible with spending laws. The administration could argue that ceasing to borrow money would break the spending law, as Congress passes, and the president signs, legally binding appropriation laws specifying what the executive branch is required to spend. Constitutional scholars say that if House Republicans refuse to raise the debt ceiling, all of President Biden's decisions, including inaction. would potentially pose a constitutional crisis in that he could not possibly comply with all laws and would thus have to violate at least one of them.

“If the president faces [a constitutional crisis], he should minimize the violation,” Cornell constitutional law professor Michael Dorf told the Post. “[T]he way to do so is to exercise the least amount of legislative direction by violating the debt ceiling rather than picking and choosing which bills to pay.”

Raising cash by selling federal land, then buying it back. This is an option that would “buy you a little bit of time,” said Dorf.

Buying back old bonds at a discount. This option would entail the Department of Treasury repurchasing government bonds that were issued with lower interest rates and  that are now available on the secondary market for less than face value because the Federal Reserve has raised interest rates. It would reduce the amount of outstanding debt at a cheaper rate than its official value and would give the administration more time to avoid reaching the borrowing limit. Though completely legal, “it’s purely an accounting trick,” said Dean Baker, an economist at the Center for Economic and Policy Research.

Invoking the 14th Amendment. Section 4 of that amendment “says the threat to default is itself unconstitutional,” Harvard law professor Laurence Tribe told the Post. “The country has to stand behind its word in terms of all of its debt obligations, and that is not something that is a matter of opinion. It’s very explicitly in the Constitution.” Another law professor, Jacob D. Charles of Pepperdine Caruso School of Law, agreed, arguing that this provision would enable the president to ignore the debt limit.

Issuing ‘consol bonds’ that keep paying interest but never mature. This option would entail the United States issuing debt that consists solely of interest payments in perpetuity and does not have a maturity date. “With this kind of bond, there is no principal the government is guaranteed to repay,” said Atlanta attorney Carlos Mucha, to whom the Post attributed the idea of the trillion-dollar coin. “So it would not count under the debt limit.”

Asking the Fed for an advance. The Fed routinely sends the Department of Treasury the income from interest payments made on government bonds that the Fed holds on its balance sheet, and City University of New York economist J.W. Mason told the Post that there’s nothing that would appear to prevent it from doing so ahead of time. “It’s silly,” he said. “But everything in this space is going to be silly.”

All of these ideas have been challenged, in one way or another, by more mainstream experts, the Post noted, and  White House aides are also skeptical of them.

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