By Keith Johnson
While the White House and the Department of the Treasury have officially ruled out minting a trillion-dollar coin to pay their debts, experts say the president and his cabinet have a host of options to bypass the banks and Congress and keep Washington in the black. Even the mainstream media is getting in the act, with New York’s top daily newspaper advocating a century-old money solution to the looming debt crisis.
The idea, which has been floating around financial circles for the past several months, was to exploit a loophole in federal law which would allow the Treasury to mint platinum coins valued at $1T each. The coin would then be deposited into the government’s account at the Federal Reserve and used to pay off current bills and fulfill future financial obligations.
However, on January 12, Treasury spokesman Anthony Coley dismissed the notion, stating, “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.”
That same day, the Obama administration also made it clear that they would no longer consider minting trillion-dollar coins.
“There are only two options to deal with the debt limit,” said White House Press Secretary Jay Carney. “Congress can pay its bills or it can fail to act and put the nation into default.”
This AMERICAN FREE PRESS reporter recently spoke with Ellen Brown, who first introduced the idea of a trillion-dollar coin in her 2007 book, THE WEB OF DEBT: The Shocking Truth About Our Money System And How We Can Break Free.
“The Constitution says Congress shall have the power to coin money and regulate the value thereof,” says Ms. Brown. “It doesn’t say what value needs to be put on these coins as long as they are made of platinum. The legality of this approach has been verified by a number of scholars as well a chairman of the House Coinage Subcommittee in the 1980s.”
Ms. Brown goes on to describe how this strategy would work.
“To get rid of the debt you could place 16 trillion dollar coins in the government account and have the Treasury buy back their own bonds,” said Ms. Brown. “The retirement of these bonds would merely be an asset swap, no different from QE2. However, if the idea is just to fix the budget deficit, you could place two coins in your account at the Federal Reserve and start writing checks against it.”
QE2 refers to the Federal Reserve’s quantitative easing program, whereby the privately-owned-and-controlled United States central bank buys up Treasury bonds in order to prop up demand and the price for them.
In addition to minting coins, Brown suggests that the president invoke the Fourteenth Amendment, which mandates the government to pay its bills on time and in full.
“The debt ceiling contradicts that,” said Ms. Brown. “It was introduced as a statute in 1917 and revised several times since, but it doesn’t take precedence over the U.S. Constitution.”
In an opinion piece published in The New York Times on January 10, Edward D. Kleinbard, a former chief of staff at the Congressional Joint Committee on Taxation and a law professor at the University of Southern California, has another idea for avoiding default on the debt.
“There is a plausible course of action, one that the president should publicly adopt in the coming weeks as his contingency plan should debt-ceiling negotiations falter,” wrote Kleinbard. “He should threaten to issue scrip—‘registered warrants’—to existing claims holders (other than those who own actual government debt) in lieu of money. Recipients of these IOUs could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.
“The scrip would not violate the debt ceiling because it wouldn’t constitute a new borrowing of money backed by the credit of the United States,” he wrote. “It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay.”
Scrip actually refers to any currency that is an alternative to the accepted legal tender at the time. Scrip can take the form of anything from an IOU to a subway token. Throughout history, scrip was often issued during times when the value of government issued currency was depressed, such as in Germany and Austria following World War I.
In the U.S., companies often created their own scrip to issue to miners or loggers in remote company towns to be used in company stores for the purpose of purchasing supplies.
In 1836, President Andrew Jackson issued the Specie Circular executive order, which mandated that the federal government would only accept gold, silver or Virginia scrip when selling public land to speculators.
Today, there are many different alternative currencies that fall under the notion of scrip, such as Ithaca dollars in N.Y. and Berkshares in the Berkshires region of Massachusetts.
But Ms. Brown contends that there are even more solutions that could be used even if the trillion-dollar idea or scrip are shot down.
“What the American people should do is lean on their local legislators to support a public banking solution,” said Ms. Brown. “These would prove very effective in avoiding Wall Street’s predatory practices by leveraging public funds to the benefit of the people. As it stands, 40% of the cost for public projects goes to interest. A publicly owned bank would cut those costs by returning the interest to the government.”
Charging a fee—or Tobin tax—for all financial transactions, including international exchanges, is also something that Ms. Brown supports.
“The idea is to aim for speculators and high-frequency program traders,” said Ms. Brown. “The poor already pay 10% to put shoes on their feet while Wall Street pays nothing for its financial sales. Taxing these top earners would probably bring an end to a lot of their fraudulent practices.”
Keith Johnson in an investigative journalist and host of the Revolt of the Plebs radio program.
