🤙 Da Coin, Da Constitution, an’ Da Fancy Bonds: Da Debt Limit Kine Tricks 🌴
Aloha, braddahs an’ sistahs! As Congress stay zoomin’ towahd one debt limit showdown, get choke ways fo’ go ’round da buggah dat stay catchin’ everybody’s eye. 🧐
No worry, trillion-dolla coin, get one new kine debt limit workaround in da hale – an’ dis one mo’ fancy, which some peeps tink could make um mo’ likely fo’ work. 🪙🎉
Fo’ plenny years, da debt limit doubters stay sayin’ dat da United States can dodge da cap on how much can borrow by makin’ one big kine coin, put ‘um in da gov’ment’s account at da Federal Reserve. Den da big shots can use da kala fo’ pay da country’s bills. Da trick stay usin’ one odd kine U.S. law, which give da Treasury head honcho plenny powah fo’ makin’ platinum coins. 💰💸
But always get da pilikia wit’ dis idea: Treasury no stay hungry fo’ um. No mo’ guarantee if da Fed goin’ take da coin. Da ting sound so outta da box dat boddah da brain. An’ now, get peeps pushin’ fo’ one mo’ fancy-soundin’ option: premium bonds. 🤔
Da gov’ment usually fund umself by puttin’ out debt in da form of financial papahs called bonds an’ bills. Dey stay worth one set kine kala aftah one fixed time – fo’ example, $1,000 in 10 years – an’ dey pay “coupons” twice a year in da middle. Most times, da coupon rates stay set neah da market interest rates. 💵📈
But wit’ da premium bond idea, da gov’ment would redo da old, pau bonds wit’ highah coupon rates. Doin’ dat no goin’ add to da nation’s debt – if befo’ da gov’ment had one 10-year bond worth $1,000, still get one 10-year bond worth $1,000. But da investahs goin’ pay mo’ fo’ hold one bond dat pay $7 a year den one dat pay $3.50, so if promise highah interest rate, da Treasury goin’ make mo’ kala. 💡📊
Da highah interest rates goin’ cost da gov’ment mo’ kala, but get pilikia? Nah. Da debt limit stay fo’ da face value of da federal gov’ment debt ($1,000 in our example), no mo’ future promises fo’ pay interest. 😎
An’ da idea get one different kine taste, too. Da gov’ment could put out bonds dat pay da regula’ coupons, but nevah pay back da main kala, o’ da perpetual bonds. Peeps goin’ buy ‘um fo’ da long-term kala flow, an’ no goin’ add to da main kine debt. 🔄💰
Da premium bond idea stay gettin’ support from some big kahunas. Da economic talk story guy, Matthew Yglesias, wen bring um up in January, da Bloomberg writer Matt Levine stay write ’bout um, an’ da New York Times guy an’ da smart kine money winnah, Paul Krugman, wen make one case fo’ um dis week. 🗣️
NOW IN ENGLISH
🤙 The Coin, the Constitution, and Fancy Bonds: Debt Limit Workaround Solutions 🌴
Hello, friends! As Congress speeds towards a debt limit showdown, many are exploring potential ways to bypass it. 🧐
Move over, trillion-dollar coin; there’s a new debt limit workaround in town – and this one sounds more sophisticated, which some suggest could make it more likely to work. 🪙🎉
For many years, debt limit skeptics have argued that the United States can circumvent the cap on borrowing by minting a large-denomination coin and depositing it in the government’s account at the Federal Reserve. Officials could then use the resulting money to pay the country’s bills. The maneuver would exploit a quirk in U.S. law, which grants the Treasury Secretary considerable authority when it comes to minting platinum coins. 💰💸
However, there have always been challenges with this idea: the Treasury has little interest, it’s uncertain whether the Fed would accept the coin, and it sounds unconventional to the point of absurdity. Now, some are advocating for a more sophisticated-sounding alternative: premium bonds. 🤔
Typically, the government funds itself by issuing debt in the form of financial securities called bonds and bills. They have a fixed value after a certain period of time – for example, $1,000 in 10 years – and they pay “coupons” twice a year in the meantime. Coupon rates are usually set near market interest rates. 💵📈
With the premium bond idea, the government would renew old, expiring bonds at higher coupon rates. This would not technically add to the nation’s debt – if the government previously had a 10-year bond worth $1,000, it would still have a 10-year bond worth $1,000. However, investors would pay more to hold a bond that pays $7 a year than one that pays $3.50, so promising a higher interest rate would enable the Treasury to raise more money. 💡📊
Would those higher interest rates, which would cost the government more money, pose a problem? Not technically. The debt limit applies to the face value of outstanding federal government debt ($1,000 in our example), not future promises to pay interest. 😎
And the idea could also come in a slightly different form. The government could issue bonds that pay regular coupons but never pay back the principal, or perpetual bonds. People would buy them for the long-term cash stream, and they would not add to the principal of debt outstanding. 🔄💰
The premium bond idea has gained support from some prominent figures. Economic commentator Matthew Yglesias brought it up in January, Bloomberg columnist Matt Levine has written about it, and New York Times columnist and Nobel-winning economist Paul Krugman made a case for it this week. 🗣️
