The Fed and the Treasury have something in common with the American people: They do not want to talk about the debt limit.
On Tuesday, when asked about the debt ceiling, Fed Chair Jay Powell batted away the suggestion of a trillion-dollar coin (more on that in a minute) that could save the country from defaulting.
"This ends in only one way, and that's Congress voting to raise the debt ceiling," Powell told a panel at the Economic Club of Washington.
Neither Powell nor Treasury Secretary Janet Yellen are willing to even countenance the idea that their offices have any power to prevent a default, or that they could intervene to blunt the impact if Congress were to ultimately drop the ball and trigger a what economists have called "financial armageddon." (Think: markets collapsing, interest rates soaring, payments to federal workers and social security recipients freezing, not to mention the unknown effects of essentially shutting down the economy twice in three years.)
The reason Jay and Jan don't want to talk about, though, is probably different from the reasons the rest of us don't want to talk about it.
Their reason? We can't let the petulant children in Congress think there's any other way out of this.
From the New York Times:
The Federal Reserve and Treasury are not publicly speaking about what they could do if an outright default were to happen this time, in part because the mere suggestion they will bail out warring politicians could leave lawmakers with less of an incentive to reach a deal.
In other words: Shhh.
To be clear, the Fed and Treasury have only a handful of pretty bad tools in the toolbox to either prevent or cope with the unmitigated disaster that a default would bring.
One idea that's evolved from something of a fringe theory to an actual proposal is the trillion-dollar coin. In short, the Treasury technically has the power to mint any size coin it wants, so Yellen could order up a trillion-dollar platinum coin and stash it in the Federal Reserve. Because it'd be locked up, the coin wouldn't get into circulation and drive up inflation the way cash would. Again, in theory.
Yellen, for her part, has repeatedly dismissed the idea. Further, it'd be up to the Fed whether to accept such a coin, and doing so would undermine the central bank's independence (and general disdain for getting dragged into politics).
In the event of a default, the Fed could, theoretically, purchase defaulted bonds to keep financial markets from going off the rails. And Treasury could, theoretically, prioritize interest payments to bond holders (something Republicans have floated, signaling they're already making contingency plans when their leadership shoots the hostage and plunges the global economy into chaos.)
Both of those ideas have been shot down by current officials.
"Treasury's systems have all been built to pay all of our bills when they're due and on time, and not to prioritize one form of spending over another," Yellen said last month.
Bottom line: Not only would the Fed and Treasury be largely ineffective at mitigating the disaster, it would also push the two agencies into the middle of an ugly political fight they have no business being in.
Once again, it's up to Congress to stop being petulant children long enough to do their jobs and avert financial bedlam (as Yellen recently called the result of a default).
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