There's no such thing as a free lunch, and there's definitely no such thing as a $1 trillion platinum coin. But both would be nice.
The idea of this super-coin has become a popular hypothetical solution for US debt woes as the country again hits its self-imposed debt limit and faces the possibility of defaulting on its debts.
Here's the idea that some Biden administration officials and Democrats have floated: There's an obscure law that allows the US Treasury to mint and circulate platinum coins in any denomination. The Treasury could mint a coin worth $1 trillion, deposit it with the Federal Reserve, and allow the government to keep paying its bills.
Sounds simple enough, right? Experts don't agree. Economists say that this audacious way of avoiding default would shake the confidence in the dollar and US Treasury as much or even more than an actual default. Stoking inflation is also a real possibility when you add $1 trillion to the US economy out of nowhere.
This weekend, Treasury Secretary and former Fed Chair Janet Yellen put the kibosh on any trillion dollar coin plans, explaining that the Federal Reserve likely wouldn't accept it.
"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," she said in a Sunday interview with The Wall Street Journal. "The Fed is not required to accept it ... It's up to them what to do."
The reality: Yellen on Friday told CNN's Christiane Amanpour that the impacts of a debt default would be felt by every American.
"If that happened, our borrowing costs would increase and every American would see that their borrowing costs would increase as well," Yellen said. "On top of that, a failure to make payments that are due, whether it's the bondholders or to Social Security recipients or to our military, would undoubtedly cause a recession in the US economy and could cause a global financial crisis."
Dire warnings of debt ceiling trouble aren't new, reports my colleague Alicia Wallace. Federal lawmakers have reached agreements in the past, and this Congress has some time — until at least early June, according to Yellen's public estimates — to reach an agreement on whether to raise or suspend the debt limit.
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