US Treasury Secy dismisses idea of minting $1 tn coin to prevent debt default

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IANS | 25 Jan, 2023
US Treasury Secretary Janet Yellen scoffed at the idea of the Federal Reserve minting a $1 trillion platinum coin to keep the government from defaulting on its national debt that had breached the $31.4 trillion limit last week, calling for the Congress to raise the limit to enable the state to honour its commitment on interest payments.

Yellen dismissed the idea as a "gimmick" which the Federal Reserve was unlikely to follow through, thus dealing a blow to some ideas floated by advocates thinking it could be used as end run around Congress amid the debt limit crisis.

As Republicans and Democrats and the White House locked horns over raising the debt ceiling limit in Congress with no solution in sight, Yellen has no other option except to hold onto her earlier action of resorting to extraordinary measures, that is prioritizing the debt and the interest payments, focusing on immediate national needs, media reports said.

Joe Manchin, a democrat from West Virginia who has the ears of President Joe Biden, had appealed to the latter to negotiate with Republican members a settlement to resolve the debt ceiling crisis.

But most Democrats were in no mood for such a negotiation and White House Press Secretary Karine Jean-Pierre ruled out any settlement with Republicans on raising the debt ceiling for any trade off as absolutely "non-negotiable".

The President is due to meet House Speaker Kevin McCarthy soon.

Some progressive economists and a section of the Democratic lawmakers have been pushing the Treasury to mint the $1 trillion platinum coin and deposit it at the Federal Reserve to raise the debt ceiling, then use the headroom created by the maneuver to fund more government spending.

It would utilise a legal loophole that allows the Treasury to mint platinum coins of any denomination, media reports said.

"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," Yellen told the Wall Street Journal in an interview on Sunday.

"The Fed is not required to accept it, there's no requirement on the part of the Fed. It's up to them what to do."

Yellen, who was the chair of the Federal Reserve between 2014 to 2018, made these remarks after the US reached its debt limit on January 19 which prompted the Treasury Department to begin using "extraordinary measures" that gives Congress time until at least early June to raise the debt limit.

He opposition to mint the $1 trillion coin as a collateral is no surprise. Because on a previous occasion of a debt limit standoff in 2021, she discussed the idea of minting a $1 trillion coin and said, "I don't think we should take it seriously".

The White House endorsed Yellen in dismissing the suggestion as Press Secretary Jean-Pierre told reporters earlier this month that "we're not considering any measures that would go around the Congress".

The $1 trillion platinum coin idea was often floated to end the impasse in the Congress on earlier occasions of the debt ceiling crisis, as it was suggested to fund broad spending plans. Progressive Representative Rashida Tlaib previously proposed a bill to mint $2 trillion worth of platinum coins to fund recurring monthly stimulus payments during the Covid-19 pandemic

While the Federal Reserve didn't actually consider the merits of minting such a coin, the central bank has been focused on monetary policy and has stayed away and kept a safe distance on matters such as this , putting its nose into matters of fiscal policy that are ordinarily handled by Congress and the president, reports said.

Those criticizing the coin mint plan feel it would only help stoke the fires of inflation which was finally coming under control since the October figures of CPI and WPI of this year showed a slide. Another risk factor was that it would raise suspicions among investors in the bond markets on the ability of the US government to redeem debt repayment with interest and on broader issues of fiscal matters.

That could cause interest rates to rise, hurting the national economy in areas such as financing mortgages in the housing markets, while also raising the government's cost of servicing its existing debt.

With the $1 trillion coin mint idea virtually going off the table, lawmakers in Congress will now have to take a bipartisan approach with the Biden administration to address the debt limit before the Treasury's extraordinary measures run out this summer by June.