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UBS floor legend continues to offer the valuable trader perspective on the movement to mint a trillion dollar coin to avert a debt ceiling crisis.—————————————-
Lewis Carroll For Treasury Secretary – The Debt Ceiling Debate Gets Wackier – In recent days, we have written about several very zany proposals to skirt around a potential debt ceiling showdown.
One was the issuance of a $1 trillion platinum coin by the U.S. Treasury.
Another was the invocation of section IV of the 14th Amendment of the U.S. Constitution.
Yet another was having the Fed tear up a couple of trillion dollars of the U.S. Treasuries it holds.
The trouble with all of these is that they are all still being discussed in several prominent venues by some normally credible people. The coin idea has drawn supportive comments from folks like Paul Krugman and a former director of the U.S. Mint.
Let’s start with the Debt Ceiling itself.
It came up during World War I. Prior to the ceiling, every bond issued by the U.S. had been individually authorised by Congress. With war debt piling up rapidly and fearing that some accidental Congressional inaction would inhibit war efforts; Congress handed over issuance to the Treasury. But, to keep some control, they set a limit, or ceiling, to the total amount of debt that could be issued. To exceed it, Treasury would have to go back and have Congress authorise further debt (bonds).
Since the ceiling is now viewed as a partisan Rubicon, Washington is resorting to zany solutions to get around it.
Some believe that the ceiling itself may be unconstitutional, since it may violate the Article IV of the 14th Amendment mentioned above. Since we may hit the ceiling limits in early March, there is hardly enough time for a Supreme Court challenge. Then there is the question of who the plaintive would be, and would he/she/they have “standing”.
The sequestration (massive cuts) deadline has been moved to March 1. The temporary spending authority (under which the government is operating) expires late in March.
These deadlines will likely morph with the Debt Ceiling for a massive sumo wrestling match in the final weeks of February. Here we go again – only this time a quick, cheap, imperfect solution may not be within reach.
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