Forget the $1 trillion coin: Should the U.S. issue IOUs to avoid a debt default?

The $1 trillion coin is a controversial, widely misunderstood proposal to prevent the U.S. from defaulting on its debt once it breaches its borrowing limit of $16.4 trillion. The plan's supporters, most of whom are liberally inclined, contend that the coin is the best way to assure that the U.S. continues to pay its bills and avoid economic catastrophe, while robbing intransigent Republicans of a hostage with which they can demand deep spending cuts. A quick recap of the theory: The coin would be deposited in the Treasury's account at the Federal Reserve, which would instantly reduce the government's debts by $1 trillion; the government could then borrow more money to continue fulfilling its myriad obligations, such as Social Security checks, federal salaries, payments to defense contractors, interest rate payments, etc.

The $1 trillion coin, however, has run into some political challenges, all of which stem from the fact that it sounds like Obama would be forging the monetary equivalent of the One Ring to Rule Them All in the fires of Mount Doom. Supporters say the coin is no less absurd or irrational than the GOP's threat to force the U.S. into default, but the surreal aura of a $1 trillion coin will not disappear no matter how hard the American public rubs its eyes. As Ross Douthat at The New York Times rightly argues, it would be easy for Republicans to portray the $1 trillion coin "as a Bond villain scheme rather than a legitimate policy move," and "public opinion, which currently favors Obama and the Democrats and regards congressional Republicans as the more irresponsible party in these negotiations, would probably tilt sharply the other way."

But advocates of economic sanity can take heart: There is another option if the GOP-controlled House refuses to raise the debt ceiling. According to Edward D. Kleinbard at The New York Times, the U.S. government could issue IOUs instead of Social Security payments and the like, which would not technically add to the U.S.'s debt. Kleinbard:

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"Scrip" has the ring of "reconciliation," "sequestration," and other obscure parliamentary/budgetary maneuvers that the American public has grown accustomed to. Furthermore, issuing scrip has a bona fide precedent: California did the same thing in 2009 when its gridlocked legislature could not reach a budget compromise. And issuing scrip would keep the pressure on the GOP, according to Jonathan Chait at New York:

Ardent supporters of the $1 trillion coin, such as Joseph Weisenthal at Business Insider, may be disappointed to see the coin idea scuttled. But Weisenthal acknowledges that the IOU theory puts the economy on safer ground: "We've reached a new stage, where a lot of the discussion is not about if the debt ceiling will be raised, but how Obama will circumvent it if/when it's not raised. Arguably that itself represents a loss of GOP leverage."