But this is, as I said, beside the point. What will actually happen next?
One possibility is that faced with looming financial chaos, McCarthy will allow a floor vote on the debt ceiling, and that a few sane members of his party will cross the aisle and help Democrats raise the ceiling. As far as I can tell, that’s the Biden administration’s plan A.
What about plan B? There are several options. Moody’s Analytics seems to think that the Biden administration might simply ignore the debt limit, invoking the 14th Amendment to the Constitution, which says that the validity of U.S. public debt “shall not be questioned.”
Another possibility is the famous platinum coin. U.S. law allows the federal government to issue commemorative platinum coins in any denomination it chooses; so it could in principle mint a coin notionally worth, say, $3 trillion, deposit it at the Federal Reserve and pay its bills by drawing down the account thereby created. (The Fed would offset any effect on the money supply by selling off some of its large portfolio of U.S. government bonds, so this would in effect simply be borrowing through the back door.)
Yet another possibility would be to issue “premium bonds.” These are bonds that offer an unusually large “coupon,” i.e., annual interest payment, relative to their principal, the amount they pay when they come due. The Treasury could auction off these bonds for substantially more than their face value, in effect borrowing without increasing the official size of the debt.
All of these plans have drawbacks, and considered in isolation they each sound a bit silly. But they should be graded on a curve — compared not with normal fiscal management, but with the catastrophic consequences if the U.S. government simply stops paying its bills.
One thing should be clear: It’s unlikely that this situation will be resolved with something resembling the deal that ended the debt ceiling crisis of 2011. Democrats have gotten somewhat tougher: They believe that President Barack Obama gave in to blackmail, and they won’t do it again. Republicans, on the other hand, have gotten a lot crazier; even if Democrats were willing to make a deal, it’s highly doubtful that McCarthy could persuade his caucus to accept it.
I wish I could offer reassurance that all of this will work out. But I can’t. When the party that controls one body of Congress has no interest in keeping America governable, catastrophe is always a real possibility.
