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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