Since Congress can't get its act together and start a plan to solve the debt crisis, there have been a number of proposals about handling the issue. We have heard about a platinum coin worth $1 trillion being deposited in the Treasury and a plan to issue an executive order to pay the bills, both are impossible and will never happen. The latest is issuing scrip for debt. This will be for payments such as Social Security.
The way scrip would work is that it would be created in exchange for the amount owed. The recipient could keep the instrument until the government had the money to pay the debt. However, if there was a need to get the money earlier, banks and, we assume, Wall Street, would purchase the instrument at a discount. How large a discount would depend upon how soon it would be assumed that the government would be able to pay its bills.
Can you imagine a pensioner who would lose 10,15, or 35% of their benefits because the government could not pay him his monthly benefit?
We will bet you that Congressmen/women, Senators and the President will get their pay and not have to accept the scrip! Nor will Wall Street or the banks, they all will receive "real money." It will only be the common people that this garbage will be dropped on!
Isn't it time that Congress get to work and solve the problem. It will require pain for all American's part, however, if it is not done the damage will be many times worse. However, plans like this scrip idea are foolish and only will put lipstick on the pig!
Conservative Tom
The way scrip would work is that it would be created in exchange for the amount owed. The recipient could keep the instrument until the government had the money to pay the debt. However, if there was a need to get the money earlier, banks and, we assume, Wall Street, would purchase the instrument at a discount. How large a discount would depend upon how soon it would be assumed that the government would be able to pay its bills.
Can you imagine a pensioner who would lose 10,15, or 35% of their benefits because the government could not pay him his monthly benefit?
We will bet you that Congressmen/women, Senators and the President will get their pay and not have to accept the scrip! Nor will Wall Street or the banks, they all will receive "real money." It will only be the common people that this garbage will be dropped on!
Isn't it time that Congress get to work and solve the problem. It will require pain for all American's part, however, if it is not done the damage will be many times worse. However, plans like this scrip idea are foolish and only will put lipstick on the pig!
Conservative Tom
The Debt Ceiling’s Escape Hatch
Oliver Munday
By EDWARD D. KLEINBARD
Published: January 9, 2013
LOS ANGELES
Related
Senate Vote Approves Rise in Debt Limit (January 27, 2012)
Times Topic: Federal Debt Ceiling (National Debt)
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THE fiscal cliff may have been avoided, but an even higher-stakes political standoff — this time, over thefederal debt ceiling — is just around the bend.
Congressional Republicans have said they will demand immense cuts to popular government programs in exchange for agreeing to raise the nation’s authorized borrowing limit of$16.4 trillion. The Treasury Department briefly nudged against that ceiling on Dec. 31, but used “extraordinary” financial measures to buy more time. If nothing is done, the government will soon be unable to pay all of its bills in a timely manner. This unprecedented event would profoundly damage the government’s credit rating and send the financial system into a tailspin.
So far, President Obama isn’t giving in. As he rightly said last week, he “will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed.”
But for the president’s tough talk to be credible, Congress and the country need to know before we reach the breach point — an event that could come as early as February — that he has a plausible plan to work around the debt ceiling.
There are no great options. Most of the ideas floated so far would either severely disrupt the public markets for Treasury debt or rely on a constitutional claim of executive authority so far-reaching that we would very likely spend the next two years locked in an impeachment fight.
Some have suggested, for instance, that the president could ignore the debt ceiling and direct the Treasury to issue more bonds to cover its obligations. But the Constitution is clear, and Mr. Obama agrees, that Congress alone has the power to authorize new borrowing.
Other supposed solutions — like the notion that the Treasury Department could create a$1 trillion dollar platinum coin and deposit it in its own account at the Federal Reserve — are even more fantastical.
However, there is a plausible course of action, one that the president should publicly adopt in the coming weeks as his contingency plan should debt-ceiling negotiations falter. He 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.
The scrip would not violate the debt ceiling because it wouldn’t constitute a new borrowing of money backed by the credit of the United States. 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. The president could therefore establish a scrip program by executive order without piling a constitutional crisis on top of a fiscal one.
To avoid any confusion with actual Treasury debt, and to be consistent with the law governing claims against the United States more generally, the scrip would not pay interest in most cases. And unlike debt, it would have no fixed maturity date but rather would become redeemable in cash only when the secretary of the Treasury was able to certify that there’s enough money available in the Treasury’s general fund to cover it.
Finally, the scrip would be transferable, allowing financial institutions to buy it at a high percentage of its face value, knowing that the political crisis would almost certainly be resolved before long.
The federal Anti-Assignment Act generally prohibits the transfer of claims against the United States from one private actor to another, but the government could waive the act’s application, which is what the president would do here.
The strategy may sound far-fetched, but it has been used before: in fact, California relied on it as recently as 2009.
Beginning in July of that year, California addressed its budget crisis by issuing 450,000 registered warrants, totaling $2.6 billion, to individual and business claimants, including recipients of aid programs, recipients of tax refunds and government contractors. Those holders who needed immediate cash were usually able to sell their registered warrants to banks at face value, though some institutions limited such purchases.
Whether as a result of public shaming, pressure from banks or a newfound sense of responsibility, the Legislature quickly worked out a budget deal and the scrip was then redeemed for cash.
Throughout the ordeal, California continued to pay its public debt service in cash and on schedule and never lost an investment-grade credit rating.
A federal scrip program, importantly, would not explicitly challenge any constitutional allocation of powers. Nor would there be confusion in the marketplace between valid Treasury bonds and this new paper, which would have a different name, financial terms and legal status. And because the scrip would be transferable, claimants forced to accept it would be able to turn it into immediate cash in private markets, for as long as the Treasury was unable to issue new debt.
Would a federal scrip program be a painless way of resolving a debt ceiling crisis? Hardly. But it would be the least awful way to defang the most extortionate demands of Congressional hard-liners — and one that would not permanently damage America’s fiscal standing in the world.
