(cheerful music)
- [Narrator] In order to avoid,
- An economic and financial catastrophe.
- [Narrator] by defaulting, Democrats and Republicans
have to agree to raise the debt ceiling by early June.
The negotiations are ongoing.
- There's no agreement.
We're still apart.
- I've done my part.
- [Narrator] But what if there were options
for the White House to go around Congress
to avoid a default even if they're not better ones?
- If Congress does not address the debt limit
there are no good options
the Treasury or the government can use
to save us from catastrophe.
- Any deviations from that path would be highly risky.
- [Narrator] Highly risky and highly unlikely,
but some are really being considered.
- I think it is worth taking seriously.
You know, they're all bad,
but how they compare to the badness of default.
- [Narrator] Here are the three risky, unlikely,
but not improbable paths
Biden could take to avoid a default.
Let's start with the first one, the trillion dollar coin.
A bill in the 90s aimed at making it easier
to mint commemorative coins technically does say
that the Treasury Secretary can mint
and issue platinum coins in any denomination.
So the thought is, why not mint one for 1 trillion
and then have enough money to not need to take on more debt?
- I think the platinum coin is the most unlikely.
- [Narrator] Jason Furman was President Obama's
top economist and was at the White House
during the first big debt ceiling crisis.
- I remember in 2011, I read about the platinum coin
on a blog post someone sent me.
I went to Tim Geithner, who was then Treasury Secretary
just in the hallway before a meeting and said,
"Hey, what do you think of the platinum coin?"
He's like, "The platinum what?"
And I'm like, "Oh, the platinum coin.
We can mint a platinum coin."
He's like, "Yeah, what are you talking about?
That's crazy."
- [Narrator] The current Treasury Secretary feels similarly.
- It's really a gimmick.
- [Narrator] The Treasury also can't just mint the coin
and automatically start spending it.
- They would need money in what is essentially
their checking account which is held at the Federal Reserve.
And so you would need them
to bring that trillion dollar coin to the Federal Reserve
the Federal Reserve to accept it
and then credit the government's checking account
with a trillion dollars.
And then the federal government could use that money.
- [Narrator] But it's not clear
the Federal Reserve would even accept the coin.
- There are no rabbits to be pulled out of hats here.
This only ends with Congress.
- I know you don't like yes or nos,
but if you were sent a trillion dollar coin
and asked to treat it as a trillion dollars,
will you treat it as a trillion dollars?
- That would be a rabbit coming out of a hat.
- [Narrator] The second but slightly more likely option
is the treasury issuing premium bonds.
The way the treasury takes on debt
in the first place is by selling bonds.
A $1,000, 10 year bond with a 3% interest rate,
also called a coupon rate,
would pay $30 every year for 10 years.
So it's really worth $1,300.
By the way, these interest payments
are one of many government expenses that are due regularly,
and if the Treasury doesn't have enough money to pay them
like they say, they won't if the debt ceiling
is raised by the X date around June 1st, that's a default.
- The world has never doubted that America
will pay the principle and interest on its bonds.
A default would crack open the foundations
upon which our financial system is built.
- [Narrator] The treasury auctions off bonds
and maybe gets $1,100 for that $1,000 bond.
They've brought in an extra a $100 in revenue.
When the debt ceiling is hit,
they aren't allowed to take on new debt
by issuing new bonds, but they could reissue bonds.
If an old $1,000 bond's term is ending,
they could put that bond back up for auction.
It's not new debt,
but they could reissue with a higher coupon rate, say 10%.
Then the bond would be worth $2,000 over 10 years.
It could bring in more money at auction
to fund the government
without technically taking out new debt.
- Even the proponents of premium bonds would admit
that they are a bad idea compared to raising the debt limit.
Launching a brand new type of bond
that pays a very high coupon payment
so it has a lower face value
in the middle of a financially turbulent period
would be a real recipe for a lot of financial market chaos.
Now, you do need to compare that chaos
to the chaos you would get if you went past the X date
and started not paying your obligations.
So this becomes a, you know,
comparison of different forms of poison.
- [Narrator] The third and most likely option,
- You could call it the most likely option
but I'd rather call it the least unlikely option.
- [Narrator] Okay, the least unlikely option,
would be to use the 14th Amendment.
Article 1 of the Constitution says,
"Congress has the power to pay the debts of the US.
But the 14th Amendment says,
"The validity of the public debt shall not be questioned,"
which could be interpreted to mean
the debt limit itself is unconstitutional.
- Say, you know what?
We can issue whatever debt we want.
We're not gonna invent some brand new coin.
We're not gonna invent some brand new type of debt.
We're just gonna go ahead and continue to issue debt.
- [Narrator] This is something the White House
is really looking into.
- I've been considering the 14th Amendment.
The problem is it would have to be litigated.
- If you did Invoke, the 14th Amendment,
and financial markets thought
you had a good enough chance of prevailing,
they would continue to lend you money.
And so, you'd be buying yourself time.
It might be that the courts
supported the theory of the 14th Amendment,
the problem is you may not get that outcome.
You may get the opposite,
and then you're back to the drawing board
with having created a bunch of chaos.
- [Narrator] But even if the 14th Amendment
isn't invoked now,
it might be for future debt limit battles.
- I'll be very blunt with you.
When we get by this,
I'm thinking about taking a look at
months down the road as to see whether
what the court would say about
whether or not it does work.
- [Narrator] Also, one path House Democrats
not the White House could take
is something called a discharge petition.
Basically, if Speaker McCarthy refuses
to bring a clean debt ceiling raise to the House floor,
a majority of members could bring it
to the floor after a lengthy process.
It's in the works but many experts say
this isn't highly likely either.
- Discharge petitions rarely succeed,
and when they do, working through the process
can take more than a month.
And we do not have more than a month to resolve this issue.
- [Narrator] Which is why those in charge
of the country's financial system say,
- There's only one way forward here,
and that is for Congress to raise the debt ceiling
so that the United States government
can pay all of its obligations when due.
- The only good outcome is one in which
Congress asks to raise the debt ceiling.
(cheerful music)