We’ve heard all this talk about the trillion dollar coin to solve the debt ceiling problem. But USC professor Edward Kleinbard propossed something a little different in his op-ed for the New York Times:
“However, 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. 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 I.O.U.’s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.”
Kelinbard said the idea of IOUs is just less risky than the trillion dollar coin. He said it “stands on much firmer constitutional ground” and exposes the president to a lesser risk of impeachment.
Isn’t this just more debt?
Kleinbard argues that the IOU doesn’t promise to pay you any money at any particular time. The IOU would basically say “we’ll pay you money but we just can’t do it right now."That doesn't seem great for a 68-year-old on Social Security on the face of it -- but Kleinbard argues that government IOUs could be good for both banks and ordinary people.
“You turn around and sell it for a small discount, and the banks will say ‘we’ll buy it at a small discount’. Think what U.S. Treasury bills yield right now. If you bought this paper at a 1 percent discount and the issue was resolved in a month. You would be getting a return of 1 percent a month instead of 1 percent a year. The financial institutions would find this attractive,” said Kleinbard.
Kleinbard said neither an IOU program nor the trillion coin are good ideas, but it’s all about which plan is best to “defang an artificial crisis and enable us to have the debate we need to have about long term spending in regular order.”
Edward Kleinbard was once the chief of staff at the Congressional Joint Committee on taxation.