The hole at the heart of economics

By The Economist online

AMERICA has a debt ceiling. It’s a statutory limit on how much debt the federal government can issue. For most of its existence (the ceiling will turn 100 next year) Congress has simply voted to raise the limit when borrowing threatens to hit it. In 2011 and 2013, however, Republicans in Congress chose a different approach. They threatened not to vote to raise the ceiling unless various budget demands were met. It was a dangerous course of action; had the ceiling not been raised the government would have found itself forced to choose between default—potentially triggering a massive financial crisis—or large, sudden cuts to spending of all sorts, triggering a deep recession.

In both 2011 and 2013 the brinksmanship concluded with a deal. Before those deals were cut, as the moment of doom loomed, some economics writers argued that the Treasury should make use of an obscure loophole in a law designed to allow the government to create platinum commemorative coins to issue a $1tn coin, which could then be used to fund government operations without violating the debt ceiling. The measure seemed legal but sounded completely barmy. At one point…

…read more

Read more here: The hole at the heart of economics

Category: Business and finance, Free exchange

Leave a Reply

%d bloggers like this: