LM Otero/AP Photo
Secretary of the Treasury Janet Yellen speaks after touring the Bureau of Engraving and Printing's Western Currency Facility in Fort Worth, Texas on Dec. 8, 2022.
Because the nation’s debt limit has been technically hit, but the Treasury Department has the ability to buy time with a series of accounting gimmicks and maneuvers before the so-called “X date” when no more borrowing can be conducted, America’s punditocracy has several months to argue about which deus ex machina to get the country out of the impending crisis is the most favorable. So we get to argue about whether its best for the executive branch to mint a trillion-dollar-coin to provide the necessary funding to continue government operations, or whether issuing “premium bonds” with a higher interest payout (which would sell for more than their face value, thus creating more spending capacity) is a better strategy. Oh what fun it is to talk about financial engineering at the precipice of catastrophe.
But Janet Yellen is here to tell you that no such musing will be tolerated. To the left, there will be no minting of large denomination coins, the Treasury Secretary tells The Wall Street Journal. To the right, there will be no payment prioritization, she tells Axios. Yellen has been clear in her belief that there’s only one way out of this mess: Congress must raise the debt limit, as it’s done countless times before.
If that’s your position, of course you aren’t going to give any indication that you will agree to any alternative. Telling Congress to do their job on the debt limit, but opening the door even a crack to how everything can get fixed if they don’t, would simply embolden the Republican hardliners in Congress. To maintain her stance, Yellen has to rule out coin-minting or payment prioritizing—and if she were asked, she would surely also rule out selling premium bonds, or having the government invoke the 14th amendment, or simply ignoring the prohibition on borrowing as the least-unconstitutional option.
This is probably fine, since any extraordinary end-run from the executive branch is only going to take place after all legislative possibilities are exhausted. Yellen is going to say no until there’s a default staring her in the face and she has to say yes.
But it does explain why her protestations, particularly on the coin, are so unconvincing—and at odds with her prior actions and statements. In her recent comments Yellen clearly begins with an objection, and then tries to reverse-engineer the rationale after the fact. But that behavior makes sense if she’s actually trying to maintain negotiating leverage in the showdown.
In shooting down the trillion-dollar-coin, Yellen sidestepped whether she would be personally opposed to it, simply saying that the Federal Reserve, in all likelihood, wouldn’t accept the coin. The mechanics of this is that the Treasury can, by statute, mint a platinum coin in any denomination, and deposit it at the Fed, using that money to cover payment obligations. If the Fed hesitates or rejects the coin, America is back at square one.
“It truly is not by any means to be taken as a given that the Fed would do it, and I think especially with something that’s a gimmick,” Yellen told the Journal. “The Fed is not required to accept it, there’s no requirement on the part of the Fed. It’s up to them what to do.”
Yellen is saying in public what she needs to say to keep the heat on Congress: that they and only they will be responsible for default if it happens, and that nothing can bail them out.
This does not appear to have much more than vibes behind it. If the coin is legally issued, there’s a compelling argument that the Fed is obligated to accept it as part of its duties as a fiscal agent of the Treasury. If anything, the Fed’s premature rejection of the coin would be interfering with the Treasury’s ability to use statutory authority granted by Congress. For a central bank that’s constantly concerned with appearing political or getting caught up in fiscal policies outside its purview, this would be its biggest intervention yet.
Yellen, of course, was a Fed chair, so it’s hard to believe she has no opinion on this. There were mini-debt limit crises in 2015 and 2017, while Yellen ran the Fed. (In both cases Congress suspended the debt limit for a short while before raising the limit.) She is clearly aware of the debate. And she is absolutely not dismissing minting the coin out of hand.
The Fed, it turns out, has their own playbook for what do to when faced with an imminent default, a playbook that both Yellen and current Fed chair Jerome Powell helped create. The options there include other forms of financial maneuvering, like quickly buying out defaulted Treasuries in the open market.
Both Powell and Yellen are on the record in transcripts of a conference call about that playbook, saying exactly what I said above: that they would be reluctant to endorse any central bank contingency, because it would relieve pressure on Congress. If it came down to the Fed acting or the country defaulting, “I wouldn’t be eager to do them, but I wouldn’t say ‘never,’” Yellen is quoted saying on the transcript.
Indeed, when Yellen dismissed the right-wing idea—payment prioritization—she was also contradicting prior planning by the Fed. In 2011, when she served as Fed vice chair and when the government came the closest ever to a debt default, the Fed set up a process for making prompt payments to service debt and delaying other obligations. At that time, Treasury was calling this “default by another name,” which of course it was: Any delay of any payment to a particular party signifies a default. But the Fed was acting behind the scenes to reassure investors that they would get their bond payments on time.
In both cases, the dynamics are basically the same. Yellen is saying in public what she needs to say to keep the heat on Congress: that they and only they will be responsible for default if it happens, and that nothing can bail them out. Behind the scenes, other options have not been foreclosed. Yellen is not saying she won’t issue a platinum coin, and she’s not saying she won’t dare send one payment ahead of schedule over another. She’s just telling legislators not to assume these measures will work, and that the blood will be on their hands.
That’s not a bad position at this time. Republicans are frustrated that they have no negotiating partner on the debt; what House Speaker Kevin McCarthy wanted to claim was the first negotiating session with the president was shot down quickly by the White House press secretary. The right doesn’t even have a clear demand—many Republicans have suggested big cuts to Social Security and Medicare (though not spelled out in detail), but their once and future leader Donald Trump recently warned them not to touch either program.
So turning up the burner bit by bit and locking the escape hatches, makes some sort of sense. It should not be construed as an abandonment of ideas like minting the coin, which have yet to be invalidated at the highest levels.
Maximum humiliation of Republicans isn’t the only strategy here, of course. Using the coin or some other option to make clear that hostage-taking simply won’t work could prove more attractive, especially to invalidate future battles. We shouldn’t have to perpetually and needlessly push to the brink of default every time there’s divided government. Convincing the Biden administration of that reality will be difficult; they have clearly gone with the strategy of tightening the vice around the GOP. But in the long term, defusing the debt limit forever ought to be the goal.
