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

The latest plan to prevent the GOP from taking the economy hostage

The U.S. government is totally good for it.
(Image credit: Thinkstock)

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."

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Ryu Spaeth

Ryu Spaeth is deputy editor at Follow him on Twitter.