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the intended surrealist solution to bankruptcy in the United States

Escape payment default…by making a simple coin? In the US, Democrats and Republicans have been fighting for weeks to find an agreement before June 1 to prevent the country from finding itself in this position. The unprecedented situation would have serious consequences for millions of Americans: rising interest rates, public service layoffs, reduction of certain types of financial assistance… Raising the US Treasury debt ceiling in law, as has already been done many times in the past, is one of the solutions that politicians most often resort to to avoid such an economic downturn.

Problem: this time the Republican opposition won’t have it. Or rather, require significant budget cuts from Joe Biden’s government in advance to give its approval to the maneuver. A job” extreme “, the American president assessed this Sunday when he returned from his trip to the G7 organized in Hiroshima, Japan. So opposite status quo of the two camps, another option, never implemented in the past, is evoked by certain American economists: printing and depositing a $1 trillion platinum coin in the US central bank to avoid bankruptcy.

What is the “billion dollar coin”?

The concept related to the production of this coin, called ” trillion dollar coin in the US, is actually quite easy to understand. Currently, the US debt ceiling is limited by law to $31 trillion. However, this ceiling has already been exceeded since January. Consequence: after exceeding this amount, the country can no longer issue new loans to finance itself. In recent weeks, urgent measures have been taken to meet the payment of the debt. But the deadline of June 1, which sets the deadline for finding a way out, is approaching. But in Congress, negotiations to agree between Democrats and Republicans are progressing.

READ ALSO: Heading for a further downgrade of the debt rating: blame the agencies, the great string of pearls of social liberals

However, a solution must be found before that date: so some economists, such as the Nobel Prize in Economics Paul Krugman, see the production of a simple platinum coin by the US Treasury as the solution to avoid crisis. Absurd? Not so much. How would this work in practice? The US government has the right to produce commemorative coins and notes of any denomination in platinum – printing them in gold, copper or silver has been much more restricted since a 1997 law. trillion dollar coin,” the legal loophole surrounding this rare metal to allow the US Treasury Department to manufacture a platinum coin worth $1 trillion and then deposit it with the US Federal Reserve.

Still according to this theory, with the filing of this document, part of the government’s debt could therefore be paid on time, thus avoiding having to find an agreement in Congress to raise the debt ceiling. What stabilizes the Treasury’s accounts, gives (a little) air to continue borrowing and short-circuiting Parliament’s vote. ” It is also a way to reassure American creditors by telling them: “don’t worry, we still have the means to remain solvent” “, explains to Marianne Jézabel Couppey-Soubeyran, Associate Professor of Monetary and Financial Economics at Paris-I Sorbonne University.

Is this theory believable?

The creation of a simple coin to relieve the finances of the American government is not a new idea. Already mentioned in the 90s, the concept became popular in 2011 during Barack Obama’s administration. At that time, the United States was already experiencing a debt crisis following the fiscal stimulus policies that the government had introduced after the crisis in subprime. Democrats and Republicans had already been slow to find an agreement to – just like today – raise the ceiling on the public debt allowed by law. Finally, a political compromise had been negotiated in time to avoid default. But during the summer, the idea of ​​using the platinum coin was germinating until it was mentioned in the White House, as Barack Obama himself told in a podcast. However, implementation had never been seriously considered.

READ ALSO: “Debt is bad”: it’s time to end the obsession with public debt

Since then, this theory has been on the table almost every year around the limits of the US public debt. ” This shows that we may begin to understand that we need alternative public finances if we are to be able to carry out the investment and transformation expenditure that a state needs. », emphasizes Jézabel Couppey-Soubeyran. However, for many, especially on the Republican side, the “billion dollar coin” is considered a far-fetched, even totally irresponsible idea. It must be said that its implementation would prevent them from resorting to “extortion” during parliamentary debates. The Republicans could no longer make a condition, as they do today, of a reduction in public spending in order to raise the authorized debt ceiling, and at the same time threaten to condemn the country to default.

But criticism in this area is not only the prerogative of the political apparatus. With an initial risk of soaring inflation, several specialists believe. ” A trillion dollar coin would cause inflation equal to a one-time tax of $3,000 on every American “, assesses the liberal economist Ryan Young, in the American magazine National Review. An argument that is not necessarily admissible to other specialists, such as Paul Krugman. For him, the US central bank could channel an excessive price increase by selling part of its debt itself. ” Central banks know how to regulate monetary inflation.also sweeps away Jézabel Couppey-Soubeyran. What they don’t know how to do is regulate structural inflation. The ultimate fear expressed by the opponents of this very special coin: a potential circumvention of democratic function. For them, minting this “trillion dollar coin” would mean doing away with Congress and therefore weakening American political and financial institutions.

Can Biden seriously think about it?

If he ordered the production of this famous platinum coin, the American president would be the first in the history of the United States to use such a mechanism. But so far he hasn’t hinted at it. ” I lean on the 14th amendment rather indicated Sunday, May 21 Joe Biden. This article states that ” validity of the United States public debt […] should not be questioned ”, and could thus give the government the opportunity to circumvent the obligation to raise the ceiling for the debt in the law. But linked to bipartisan work, the head of state emphasized in particular that there was still time to “ find an agreement with Republicans in Congress to raise the debt ceiling the classic way. He also discussed this with Kevin McCarthy, the manager of Big old party in the House of Representatives, on the plane that brings him back from the G7 to Japan.

READ ALSO: Does the burden of debt fall on taxpayers? As in 19th century England…

But in any case, the possibility of seeing Joe Biden resort to the “trillion dollar coin” seems very unlikely. Janet Yellen, her own Secretary of State for the Treasury – the equivalent of the finance minister in France – had shown in 2021 her reluctance to make such a decision. ” I’m against it and I don’t think we should seriously consider it Janet Yellen said on CNBC. It really is a deficit, and what is needed is for Congress to show that the world can count on the United States to pay its debt. There are ten days left for the Secretary, Biden and her administration to prove it … or the piece may have to be reconsidered.

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