Fed likely to oppose $1 trillion currency solution to reduce debt – Yellen

As the debt ceiling battle escalates on Capitol Hill, an elusive solution to the dilemma has emerged. The Treasury will mint a 1TB platinum coin, deposit it in the Federal Reserve, and an asset swap will generate an additional $1 trillion to cover A large portion of Washington’s bills. exceptional measures They are already employed by the Treasury Department and investors should note how this could affect their investment portfolios. In a new article, SA contributor James Baker sheds light on how that could happen Impact stock, bond, gold, silver and US dollar marketshighlighting the various consequences of past debt-ceiling crises.

Back to mint: The concept of a trillion dollar coin dates back to 1992, when populist presidential candidate Bo Gritz proposed the idea during his second run for the White House. The idea resurfaced during the debt-ceiling crisis in 2013, and the Obama administration even explored the possibility before the deadlock ended with a continuing solution. This method results in the United States minting more money to pay its obligations, rather than borrowing through Treasury bills (or collecting taxes).

While the trillion-dollar coin is not illegal, the accounting stunt has been frowned upon because it could threaten congressional checks and balances and open a Pandora’s box around all public funding. It’s based on a loophole from a 1996 bill discussing commemorative coins. Per 31 USC 5112(k): “The Secretary may mint and issue platinum bullion and proof coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may specify from time to time.” Has the United States ever defaulted on its debt?

“It’s by no means a given that the Fed would do that, and I think especially with something that is a gimmick,” Treasury Secretary Janet Yellen said in an interview. “The Fed is not required to accept it, and there is no requirement on the Fed’s part. It is up to them what they do.”

prospects: If the extraordinary measures are exhausted and Congress fails to raise the $31.4 trillion debt ceiling – something that could happen by early June – there could be major consequences for the US economy. “Our borrowing costs are going to go up, and every American will see that borrowing costs go up as well,” Yellen warned. “Furthermore, failure to make the payments due will undoubtedly lead to a recession in the US economy, cause a global financial crisis…and will certainly undermine the dollar’s role as a reserve currency used in transactions all over the world.”

Latest Poll: With the debt ceiling battle waged on Capitol Hill, and the economy likely to default, should the trillion dollar coin solution (mentioned above) be used to solve the crisis? Take the latest Wall Street Breakfast poll and see the results here.

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