U.S. Debt Ceiling: Here's What Washington Could Do

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The United States hit the $16.4 trillion debt ceiling on Dec. 31, 2012. Thanks to some creative financial maneuvers, dubbed "extraordinary measures," the government is running on $200 billion in emergency funding, provided by the Treasury Department.

Congress, which sets the debt limit and can approve more borrowing as needed, is in the midst of debating whether or not to raise the limit. Failing to do so means the government will default on its obligations. The result would be nothing short of disastrous.

With only weeks left before the "emergency funding" runs out, the whole country is weighing in on what could and should be done. Following are three options Washington could choose.

Three Possible Outcomes in U.S. Debt Ceiling Debate

The 14th Amendment

U.S. President Barack Obama has repeatedly said he refuses to haggle over the debt ceiling again. His first go around in 2011 was a disaster and something he doesn't want to relive.

What he could do is use his power from a constitutional provision known as Section 4 of the 14th Amendment. It gives the president the right to raise or ignore the U.S. debt ceiling.

It states "the validity of the public debt of the United States, authorized by law…shall not be questioned."

This would do little to address the debt ceiling problem, though it remains an option. It would simply "kick the can down the road."

Carney told reporters Wednesday that the president has no plans to resort to the 14th Amendment. He said instead it's up to Congress to fix the country's debt issues.

The Boehner Rule

The Boehner Rule, the GOP's golden rule when it comes to the debt ceiling, states that every dollar the debt ceiling is raised requires one dollar of spending cuts over the next 10 years.

Rep. John Boehner, R-OH, and his Republican camp are also gunning for closing loopholes and equalizing tax rates.

The House Speaker told The Wall Street Journal the impact of the bloated debt ceiling is "killing our economy."

"It's causing investors to sit on their cash. They're afraid to invest. It's a wet blanket on top our economy," Boehner said.

The sole way to construct long-term economic growth, Boehner believes, is to reduce the country's debt through reforming entitlement spending and taxes.

Getting Democrats to agree on dollar-for-dollar spending cuts, while not revisiting more tax increases, is going to be Washington's next tough battle.

The $1 Trillion Coin

The U.S. Treasury Department could skirt a debt ceiling standoff by minting a shiny new $1 trillion coin.

A minuscule part of a U.S. Treasury code permits the Treasury secretary to "mint and issue platinum bullion coins and proof platinum coins" of a size and denomination of "the secretary's discretion."

The original premise of that section was that the Treasury might mint a commemorative coin and sell it to collectors, like the popular American Eagles.

But some imaginative folks – like economist Paul Krugman – have suggestive the coin could magically erase an equal amount of the government's debt liabilities, wiping trillions of dollars off our government's balance sheet.

The White House has been quick to dismiss such a scheme. U.S. President Barack Obama's press secretary Jay Carney said when fielding questions from reporters regarding the possibility, "I have no coins in my pocket."

In fact, a $1 trillion coin is a very dangerous solution to the debt ceiling problem, as Money Morning outlined in this story yesterday.

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Join the conversation. Click here to jump to comments…

  1. joseph gottfried | January 11, 2013

    pls get on congress to fix debt cliff by end of january. get them to eliminate all ridiculus pork in fiscall cliff congress past. have them tax all american investments overseas and tax money before money its sent overseas. tax founder of facebook for giving up his us citinship and sending his money oversees. he should move out of us. us govt should garnish any profits he makes.

    give irs money to collect money owed in past yr or take their property. irs should should garnish pay of us employes that .owe the us money. suggest u send my comments to boener house speaker and senator reid.

  2. ADAM | January 12, 2013

    I like how the reporter writes a single $1 trillion coin has the ability of "wiping trillions of dollars off our government's balance sheet. " Good mathematical logic. Are you an American too?

  3. H. Craig Bradley | January 12, 2013

    The way I see it, the House of Representatives has two possible alternatives at this point:

    1.) Give President Obama everything he asks for without reservation. Call it the "Yes Sir " Approach.

    2.) Get rude with "Mr. President" and basically be hard-nosed with a good old ultimatum:
    " Take it, or leave it" ( accept the reality of a default). Speaker Boehner should sent Eric Cantor in his place ( a subtle put-down) and then instruct Rep. Cantor to be "snooty" with Pres. Obama. (in private), attempting to provoke him (in public).

    The President fully intends to circumvent Congress on all matters from now on anyway if they don't concede to his way of doing business. If Congress calls his bluff, then we may have a Constitutional Crisis on our hands. Either way, the voters have lost again. (No cure for stupidity).

  4. H. Craig Bradley | January 12, 2013

    The way I see it, the House has two possible alternatives at this point:

    1.) Give President Obama everything he asks for without reservation. Call it the "Yes Sir " Approach.

    2.) Get rude with the President and basically be extremely hard-nosed with an ultimatum: " Take it, or leave it" ( accept the reality of a default). Speaker Boehner should sent Eric Cantor in his place ( a subtle put-down) and then instruct Rep. Cantor to be "snooty" with Pres. Bwana. in private, attempting to provoke him to anger (in public).

    The President fully intends to circumvent Congress on all matters from now on if they don't concede to his way of doing business. If Congress calls his bluff, then we have a Constitutional Crisis

  5. Roger L Lee | January 12, 2013

    Are the state debts considered part of the national debt?

  6. Attila | January 18, 2013

    It is ludicrous to watch Boehner go to the Pres with hat in hand, when he holds the high card. If Congress does not authorize funds, the Pres has no recourse other than public whining. Here is a winning strategy for Congress:

    -Hold hearings establishing the original intent of the Commerce Clause (which clearly was to regulate duties between states ONLY)

    -Pass funding for all but one or two departments (say EPA and "Education"), deleting those on the grounds that they have nothing to do with the Commerce Clause, along with the debt ceiling extension for six months

    -Make it clear that the Congress will no longer be responsible for robbing our grandchildren

    Regards,

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