The latest debt-ceiling proposal: Issue IOU's

Thinkstock

The $1 trillion platinum coin seems too wacky; the 14th amendment too risky. But could IOU's be the solution to an impasse on raising the nation's borrowing limit?

Yes, and President Obama should publicly adopt the idea, Edward Kleinbard, a University of Southern California law professor and former chief of staff to Congress’s Joint Committee on Taxation, argues in a Thursday New York Times op-ed. If lawmakers can’t reach an agreement before the nation hits its debt ceiling -- which could happen as soon as next month -- then Obama should have a backup plan of issuing IOU's in place, Kleinbard argues. 

“[Obama] should threaten to issue scrip -- 'registered warrants' -- to existing claims holders (other than those who own actual government debt) in lieu of money. Recipients of these I.O.U.’s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.”

Kleinbard is hardly the first to propose the idea. Slate’s Matt Yglesias suggested it in early December. And New York Times Op-Ed columnist and Nobel Prize winner Paul Krugman argued for such IOU’s on Monday, though he called them “Moral Obligation Coupons.” In Krugman and Kleinbard, the idea has found two prominent proponents.

Without congressional intervention, the government is expected to reach its debt ceiling in the second half of February, the Bipartisan Policy Center predicts. The only thing preventing a devastating national default, which could have ripple effects around the globe, are a handful of hail-mary proposals:

  • One that calls for Treasury to use its power to create commemorative coins to mint a $1 trillion platinum coin. The idea has gained traction among some, but mostly as an absurd solution to an absurd problem.
  • Obama could argue that the 14th amendment grants him the constitutional power to forge ahead with issuing new debt, as it states that “the validity of the public debt... shall not be questioned.” But he has ruled it out, saying “I have talked to my lawyers; they are not persuaded that that is a winning argument.”
  • And then there’s a plan known as “prioritization,” which calls for the U.S. government to use incoming daily revenue first to pay the nation’s lenders to prevent a default, while deferring payments to some domestic programs such as Social Security, Medicare, Medicaid, and others. That idea has a proponent in Sen. Pat Toomey, R-Pa., though Treasury and at least one official at the credit-rating agency Standard & Poor’s have suggested it is a default by another name.

The appeal of the IOU, or scrip, lies in the fact that though it closely resembles debt, it isn’t, Kleinbard argues.

“It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay,” Kleinbard argues. “The president could therefore establish a scrip program by executive order without piling a constitutional crisis on top of a fiscal one.”

Most importantly, the IOU scheme has a recent precedent. California issued nearly half-a-million such IOU’s as it dealt with a cash crisis in 2009. They provided enough cover for lawmakers to strike a deal quickly, without a hit to the state's credit rating.Republicans have signaled they may hold up a debt-ceiling increase in exchange for spending cuts, which they argue are necessary for the nation's long-term fiscal health. The President contends that reining in spending and reducing the deficit is important, but has vowed that he will not negotiate on the debt ceiling.

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Forecasting Cloud's Future

    Conversations with Federal, State, and Local Technology Leaders on Cloud-Driven Digital Transformation

    Download
  • The Big Data Campaign Trail

    With everyone so focused on security following recent breaches at federal, state and local government and education institutions, there has been little emphasis on the need for better operations. This report breaks down some of the biggest operational challenges in IT management and provides insight into how agencies and leaders can successfully solve some of the biggest lingering government IT issues.

    Download
  • Communicating Innovation in Federal Government

    Federal Government spending on ‘obsolete technology’ continues to increase. Supporting the twin pillars of improved digital service delivery for citizens on the one hand, and the increasingly optimized and flexible working practices for federal employees on the other, are neither easy nor inexpensive tasks. This whitepaper explores how federal agencies can leverage the value of existing agency technology assets while offering IT leaders the ability to implement the kind of employee productivity, citizen service improvements and security demanded by federal oversight.

    Download
  • IT Transformation Trends: Flash Storage as a Strategic IT Asset

    MIT Technology Review: Flash Storage As a Strategic IT Asset For the first time in decades, IT leaders now consider all-flash storage as a strategic IT asset. IT has become a new operating model that enables self-service with high performance, density and resiliency. It also offers the self-service agility of the public cloud combined with the security, performance, and cost-effectiveness of a private cloud. Download this MIT Technology Review paper to learn more about how all-flash storage is transforming the data center.

    Download
  • Ongoing Efforts in Veterans Health Care Modernization

    This report discusses the current state of veterans health care

    Download

When you download a report, your information may be shared with the underwriters of that document.