At this time of year a lot of people are trying to find ways to pay off those credit card bills. Debts have stacked up, spending habits haven’t changed and now the writing is on the wall – it’s time to pay back what you owe.

But it’s not just the average person who is dealing with this problem; the US is facing the same issue. Being a government, of course, it can’t simply transfer to a 0% credit card to buy time if it approaches its credit limit, but it can do things mere mortals could never dream of.

Like mint a trillion-dollar platinum coin.

Not just a pipe dream

The trillion dollar coin has come into the national consciousness just as the US tries to deal with its massive debt burden. US law sets its government a limit for its debt, which only a vote in Congress can extend. This normally wouldn’t be too much of a problem, however, now that the debt burden has reached $16 trillion and is rising, the US is at the top of its credit limit and politicians need to decide what to do about it.

The tussles about how to cut debt have led to some heated debates up on Capitol Hill. One side argues taxes have to rise, the other that benefits must be cut. Battle lines have been drawn with both sides effectively playing chicken as spending hurtles towards the limit.

If the politicians don’t come to an agreement then the US may not be able to borrow anymore. If it can’t borrow it can’t pay back what it owes so it may have to declare a massive sovereign bankruptcy.

This would push the world economy into financial shock that would make the 2008 financial crisis look like a storm in a tea cup. But rather than deal with the issue head on, the bright sparks in Washington have voted to push out a decision on the debt ceiling to May this year.

The prospect of a diplomatic solution to this crisis seems to be fading, so people have been scratching their heads to find any way they can to try and stop a default. And that’s where the trillion dollar coin comes in.

Someone found an obscure line in the United States Code for the Treasury – the rules allow for certain coins to be minted of any value at all. So the US Treasury could simply mint a coin and pay their debts that way –avoiding Congress and political wrangling entirely. But is the plan feasible?

So what would a trillion dollar coin look like?

A trillion dollar coin would have to be made out of platinum because platinum coins are not subject to accounting and quantity restrictions unlike other metals used to make coins in the US.

So you couldn’t have a silver or gold trillion dollar coin, as the amount required to deal with the US’s debt mountain would be too large and would increase the amount of money in circulation above legal limits.

But the Treasury department can mint platinum coins of any denomination it chooses. Thus, there is a legal basis to produce something that could pay off the US debt in one swoop.

So, let’s say that Congress can’t come up with a deal to extend the US’s debt ceiling and bring public spending to a more sustainable level, at this point the Treasury Secretary (with the backing of President Obama) could decide to by-pass Congress and deal with the problem itself. By minting a single coin.

Have you got change for that? Problems spending a trillion dollar coin

After minting, the coin would be deposited at the Federal Reserve; the Treasury could then use this money to pay its bills, thus removing the risk of a default. So, why not start minting these coins straight away? There are a few reasons the US Treasury and the President are right to be wary of this option.

Firstly, the move goes against the spirit of American politics. Although the President can authorise this, the principal behind US politics is checks and balances. The President should be kept in check by Congress, and it is only because of a quirk of the law that he would be able to by-pass US lawmakers in this way.

This would most likely cause outrage in Washington in future and in the media. Thus, it is a high stakes solution, which could easily backfire on a President and end up a PR nightmare. 

Secondly, is it too good to be true? The US may find it harder to sell debt in future if it mints this coin. If the President and Treasury secretary had to go behind the back of Congress to try and pay its debts, and if the US have lawmakers who are willing to let the country go bankrupt then foreign buyers of US debt may start to get wary.

Would China, the largest holder of US debt, accept a one trillion dollar coin? Maybe not…

Thirdly, economists may start to worry about the inflationary effect of a trillion dollar coin. Economics 101 teaches us that the more money there is in circulation in the economy the more chance there is that the economy will over heat causing inflation to run riot.

This is an economist’s concern until prices start to rise on everything from bread to clothing and housing. High inflation reduces living standards, so the trillion dollar coin could have unforeseen social consequences and should not be minted lightly. 

The lesser of two evils

The trillion dollar coin may not be as simple a solution as it looks, but it would draw a line under the prospect of a US default. While it may stoke inflation and reduce the nation’s credibility in the long-term, it might teach lawmakers in Congress a lesson – stop threatening the world with a US default to try and win partisan gains and get your act together.

A trillion dollar coin is unlikely to be common currency, but stranger things have happened, especially when politics are as dysfunctional as they are in the US.