Have you heard about this trillion dollar coin idea?
Well, it’s an idea to ‘solve’ the debt ceiling issue that is equal parts absurd and clever. The debt ceiling, in case you aren’t aware, is the arbitrary ceiling Congress has established to limit the amount of borrowing the Federal government can do. The current debt limit (or ceiling) is approximately $16.4 trillion and the Federal government is going to bump up against the ceiling sometime between February 15 and March 1.
In 2011 when the government had to raise the debt ceiling, there was a showdown between Congressional Republicans and the Obama Administration. Just days after the debt ceiling fight was finally resolved, S&P downgraded the credit rating of the United States for the first time in the country’s history and the Dow Jones Industrial Average dropped nearly 6% in a single day.
This time, the Obama Administration has pledged not to negotiate the debt ceiling as they’ve asserted the ceiling should be raised as doing so simply allows the country to pay its bills. Meanwhile, it’s unclear how Congressional Republicans will proceed.
In the case that there is yet another showdown, the trillion dollar coin idea is gaining traction as a legitimate solution to the debt ceiling. Here’s how The Atlantic broke down the idea:
Enter the trillion-dollar coin. It sounds nuts. But there’s a loophole that actually lets the Treasury create coins in whatever value it wants, even $1 trillion. It’s all straightforward enough. The Treasury would create one of these coins, deposit it at the Federal Reserve, and use the new money in its account to pay our bills if the debt ceiling isn’t increased. This has gone from being just another wacky idea in the world of internet comments to something that’s getting taken seriously due, in large part, to the efforts of¬†Joe Weisenthal¬†ofBusiness Insider¬†and¬†Josh Barro¬†of¬†Bloomberg View¬†to promote it. Their logic is that as silly as the trillion-dollar coin sounds, the debt ceiling is far sillier — and much more destructive.
But how realistic is this trillion dollar coin? Well, BetOnline has put a line on whether the administration chooses to mint a trillion dollar coin in 2013 and the coin concept is a long shot.
The yes is +625 while the no is -1100. If we split the juice evenly, the odds are -862.50/+862.50. Put another way, the implied odds of the Obama Administration taking the extraordinary step of minting a one trillion dollar coin are 10.39%.