how the $1 trillion coin minted by the United States and deposited into the treasury doesn’t help resolve the outstanding debt without ramifications.
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Money is tough and a lot of these answers miss the point. The debt ceiling is the dumbest thing in finance and it’s strictly political, not economic at all. It’s like if my partner refused to let me pay our joint credit card bill because she didn’t like the fact that I purchased a Persian rug that was out of our price range and didn’t match her tastes. I wouldn’t be able to go get a new credit card with the same terms from the bank because I didn’t honor my last agreement.
Money is a store of value, a medium of exchange, and up until 1971 it was generally backed by a fixed amount of gold held in a bank vault in Fort Knox or Manhattan or a few other hard-to-rob places. This gold standard was $35/ troy ounce (31.10 g), set in 1944 by some dudes in a ski hotel in a New Hampshire town called Bretton Woods.
In 1971 when Nixon took us off the gold standard (for a few reasons), the amount of dollars that the US Treasury could now mint was technically infinite.
What **didn’t change** between 1970 and 1971 was that money has to be **credible**. There are loads of historical banknotes in existence (German marks, confederate states dollars, etc.) that are valuable in the same way a baseball card is valuable, but not valuable in the sense that you can actually pay debts with them (well I guess technically you could, but that would be a form of bartering, and not payment.) These extinct bills are not credible because people ceased to believe they are worth anything because they think that other people don’t think they’re worth anything. If that sounds like a giant circular reference, you’re on track.
In 1970 the US dollar was credible because people believed we had the ability (which we probably did?) to exchange all dollars in the entire economy (plus or minus 1%) for an equal amount of gold because we had enough gold to do a physical exchange. In 1971 the money was credible because nothing bad happened when it was no longer backed by gold (“what good is gold in practice anyway?”, one might fairly argue. “It’s shiny!”, one might fairly respond.), and everyone still accepted it in exchange for labor and investment payouts.
Right now one (simplified) transaction the Treasury could make is:A. Print a single $31.42 trillion billB. Deposit that bill in the Treasury’s checking account held at the TreasuryC. Look across their balance sheet, noticing they now have 31.42 trillion dollars, and pay back all the debts they’ve incurred and still owe various investors from over the last 234 years, which also happens to be $31.42 trillion.D. Look down at $0 Cash, $0 Debts, and effectively start over with a clean slate.
That would work perfectly if everyone had a sudden case of amnesia and it was wiped from the history books. There are a few financial / economic problems with this. I have no idea what the legal consequences of this would be as I’m not an expert at all in that area, but honestly those are the least of your problems.
There are currently ~2.2 trillion dollars currently circulating in the economy (I think that’s a global number but I’m not sure). US GDP (the economic value of everything we do as a country in a full calendar year), is roughly $23 trillion. After step D above, there would be 15x more money in circulation, essentially flooding the economy with a about 18 months of all US economic production overnight. This would be a disaster for most people.
The value of money is in a constant dynamic play of supply and demand. When you increase the supply / availability of something by 15x overnight, the value of that thing goes down, which is why OPEC and oil production are so closely controlled and monitored and fought about. Who doesn’t want money, though, right? After all, there’s not a physical storage issue for money like there would be for oil, especially because all those transaction steps would most likely happen digitally anyway. For a short time, yes, everyone would be glad to pad their bank accounts and take what was available to them. Except. The people that would be paid back are the *existing US creditors* (read: retirees, foreign investors, the US govt itself, and the Federal Reserve).
This means that the **supply of money has increased dramatically** for those who already own the majority of legitimate wealth producing assets: machines, land, factories, software companies, anything unrelated to crypto, etc.
But the **supply of wealth producing assets has stayed the same.** Therefore, the prices of wealth producing assets will sky-rocket in real dollar terms, further widening the wealth inequality gap. (Same supply, more demand; investors don’t like to hold cash, the like to own assets). Increased demand drives up prices, and the value of each incremental dollar is less and less.
US social unrest increases, the confidence in the management of the treasury and federal reserve decreases, the value of the dollar decreases… it’s just a messy situation. No silver bullets.
TL;DR: The government has to honor its debts and maintain a level of financial stability that maintains the “full faith and credit” of the United States in order to maintain is position as global financial hegemon. No games allowed.
If you want a country playing this financial engineering game with disastrous consequences, China and her real estate market is a great place to start. This school of thought is also sometimes espoused by people who identify as “modern monetary theorists”.
Trust in your financial system is a game you can play liberally until you can’t, and when you can’t there’s no restart button.
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