From a Trillion-Dollar Coin to Invoking the 14th Amendment, How the U.S. Could Address the Debt Ceiling
President Biden says Congress must act to increase borrowing limit; others see alternatives
The federal government could soon run out of money to pay its bills, raising questions about what the U.S. can do to avoid a historic default.
Washington lawmakers have acted 25 times since 1993 to raise or modify the federal borrowing limit, or debt ceiling, according to the Congressional Research Service. The narrowly divided Congress is still considering approaches this time around, creating speculation about other possible options. Those range from changing Senate filibuster rules to the Treasury Department minting a trillion-dollar coin to pay government debts.
The Treasury Department since August has been taking measures to conserve cash after the nation’s debt limit was reinstated at roughly $28.5 trillion following a two-year suspension. Treasury Secretary Janet Yellen said the agency is likely to exhaust those measures by Oct. 18 if Congress doesn’t act, creating uncertainty about whether the Treasury could meet all the nation’s commitments afterward.
Here are some theories on how the debt ceiling stalemate might be resolved.
What can Congress do?
Democrats, who control both chambers, have a number of tools that they could use. One would increase the debt ceiling using a procedure called budget reconciliation that requires a simple majority vote, requiring no Republican support.
Democrats have also been discussing whether to make filibuster rules, or a supermajority vote, not apply to debt-ceiling legislation—or even whether to eliminate the filibuster for one day—to raise the borrowing cap. This would require all 50 Democrats to vote to change Senate procedures that require 60 votes to pass most legislation.
Other options include recruiting 10 Republicans to join Democrats in voting to clear the 60-vote hurdle or Republicans agreeing to give Democrats unanimous consent to call up the legislation.
President Biden and Ms. Yellen said they believe Congress alone is responsible for raising the limit, which would allow the Treasury to raise cash by tapping bond markets.
What’s this about a $1 trillion coin?
At least one Democratic lawmaker, Rep. Jerrold Nadler (D., N.Y.), has long backed the idea, also discussed widely on social media, that the Treasury Department could work around any Congressional impasse by minting a platinum coin to create new money.
The idea is that the Treasury could mint a coin of a large denomination, such as $1 trillion, deposit the coin in its bank account at the Federal Reserve and pay its bills that way. Federal law gives the Treasury secretary authority to mint platinum coins but doesn’t specify what their denomination must be.
Ms. Yellen has indicated this idea is essentially a nonstarter for resolving the debt-ceiling issue.
“I’m opposed to it and I don’t believe that we should consider it seriously,” she told CNBC in a recent interview. “It’s really a gimmick and what’s necessary is for Congress to show that the world can count on America paying its debts.”
Ms. Yellen said minting a platinum coin would also compromise the independence of the Federal Reserve by conflating monetary and fiscal policy.
Could President Biden invoke the 14th Amendment?
In remarks earlier this week, Mr. Biden said he couldn’t guarantee that the U.S. would be able to pay its debts if Congress doesn’t raise the limit.
Some legal experts disagree. They believe Mr. Biden has the authority to instruct the Treasury to continue issuing government bonds, regardless of what Congress does. One legal theory that such action would be justified relies on the 14th Amendment to the U.S. Constitution, which says “the validity of the public debt of the United States…shall not be questioned.”
Neil H. Buchanan, an economist and professor of law at the University of Florida, said that amendment essentially renders the debt ceiling unconstitutional, meaning Mr. Biden has room to act.
“The debt ceiling casts doubt on the validity of the debt because what it says is that if the debt ceiling becomes binding, the country won’t be able to pay some of its obligations,” Mr. Buchanan said.
The idea of using the 14th Amendment as justification for continued government borrowing has been raised previously, including by former President Bill Clinton leading up to a debt ceiling standoff during the Obama administration. Then, the White House said the president didn’t have authority to act on his own to issue new debt.
The current administration takes a similar view, a Treasury spokeswoman said.
Mr. Buchanan noted that Mr. Biden would likely face legal challenges if he appealed to the Constitution to overstep debt limit statutes.
Who gets paid first if the ceiling isn’t raised?
If the debt ceiling isn’t raised, Treasury could confront the possibility of using available cash to pay certain parties over others, such as paying interest to bondholders before sending out Social Security payments.
In fact, Federal Reserve and Treasury Department officials during a similar debt-ceiling scenario in 2011 during the Obama administration formalized a plan to give priority to certain payments over others. The officials had planned to make on-time payments on Treasury debt, while delaying payments for other bills.
In response to a question about how the Treasury might prioritize payments, an agency spokeswoman said the “only way for the government to address the debt ceiling is for Congress to raise or suspend the limit.”
President Biden ‘s Council of Economic Advisers, in a recent blog post, warned that a U.S. default on its debt could cause an economic recession, roil financial markets, leave many American families without access to financial assistance they rely on and cripple basic functions of the federal government.
Still, it is plausible that the Treasury Department could opt for a plan similar to the one considered in 2011 this time around, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
“It would come with a lot of operational question marks,” Mr. Akabas said. “And in addition, there are the legal question marks about if some people are getting paid and not others, does it generate lawsuits about ‘You got paid, and I didn’t.’”