Avoid the fiscal cliff and bring a level of certainty to the global markets and investors. Done.
Increase the debt limit to pay our country’s bills. Done? Well, not so fast.
Since Congress narrowly avoided sending the U.S. over the fiscal cliff, attention has shifted to the debt limit. Currently the U.S. national debt stands at nearly $16.4 trillion. Congress must pass legislation to increase the debt limit which would enable the U.S. to pay bills it has already incurred.
According to the Bipartisan Policy Center, a Washington, D.C. think tank, the U.S. may not have sufficient funds to pay its bills starting between February 15th and March 1st, earlier than expected.
Technically, the federal government reached the debt limit of $16.4 trillion in December 2012, but used accounting measures to extend the window before funding problems resulted, according to the Bipartisan Policy Center.
If the debt limit is not raised, who decides who gets paid and which bill gets paid?
Over the past week, congressman Jerrold Nadler (D-NY) and pundits such as Nobel laureate in economics and New York Times op-ed columnist Paul Krugman have stated their support for the president authorizing the minting of a $1 trillion coin to prevent a default.
A law established in 1996 grants Treasury Department the authority to create coins in any denomination.
The Treasury Department website states Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has raised, temporarily extended or revised the definition of debt limit 78 times with the bulk of them occurring under Republican presidents. The debt limit has been raised 49 under Republican presidents and 29 times under a Democratic president.
TheGrio contacted the Treasury Department for comment. Treasury directed theGrio to White House Press Secretary Jay Carney’s press briefing for January 9th.
According to the press briefing transcript on Whitehouse.gov, reporters asked repeatedly whether the Obama Administration would seriously consider a $1 trillion coin to prevent default. Mr. Carney did not explicitly rule out the trillion dollar coin option.
Carney said in part, “I can tell you that the president does not believe that there is a backup plan or a plan B or an off ramp. The only viable option here is Congress to fulfill its – is that Congress fulfills its responsibility and ensure that the United States of America pay its bills, as it has always paid its bills throughout its history.
Jared Bernstein, former chief economist and economic advisor to Vice President Joe Biden, says he would prefer Congress raise the debt limit instead of minting the coin. “There’s no plausible rationale for breaching the ceiling. Even though the coin is a ridiculous gimmick, it’s better than the alternative.”
Bernstein emphasized the consequences of the U.S. defaulting on its debt goes beyond a possible credit downgrade by the ratings agencies. “I don’t think they take consequences seriously. Much worse is the breaking of literally millions of contracts,” Bernstein, currently a senior fellow at the Center on Budget and Policy Priorities, says. He urges Congress to “sit down and resolve this like grown-ups” because bondholders and entitlement programs would be affected.
Since the White House did not emphatically reject the coin option, the debate rages on.