Al Drago/Pool/Reuters
- Yellen torched the idea of minting a $1 trillion platinum coin to prevent a US default, calling it a "gimmick."
- "I'm opposed to it and I don't believe we should consider it seriously," Yellen told CNBC on Tuesday.
- Minting a coin has gained support among some economists to prevent a default with potentially ruinous global economic consequences.
- See more stories on Insider's business page.
Treasury Secretary Janet Yellen trashed the idea of minting a $1 trillion coin to defuse the debt ceiling crisis as the US veers toward what could be a devastating default on its debt payments.
"I'm opposed to it and I don't believe we should consider it seriously," Yellen told CNBC on Tuesday. "It's really a gimmick and what's necessary is for Congress to show the world can count on America paying its debts."
-Squawk Box (@SquawkCNBC) October 5, 2021
She went on: "The platinum coin is equivalent to asking the Federal Reserve to print money to cover deficits that Congress is unwilling to cover by issuing debt. It compromises the independence of the Fed, conflating monetary and fiscal policy."
Yellen argued that minting a platinum coin would undercut faith that the US "can be trusted to pay the country's bills."
Her remarks throw more cold water on an idea that's gained traction, particularly among left-leaning economists as the US inches closer to what may be an economically devastating default. The law that covers the types of coins the US can mint allows the Treasury to create a $1 trillion platinum coin, and deposit it at the Federal Reserve to continue paying its bills as normal. Proponents argue preventing a debt ceiling breach with ruinous global economic consequences far outweighs the risks of a silly-sounding approach to sidestep staunch GOP opposition.
"Extraordinary times call for extraordinary gimmicks," Nobel Prize-winning economist Paul Krugman wrote in a tweet on Friday. He published a recent New York Times op-ed urging the Biden administration to take unilateral action to mint the coin to avoid the US defaulting on its debt.
Still, the White House is unswayed even as Republicans firmly dig in on their insistence that Democrats must lift the borrowing cap on their own. "We obviously look at a range of options and none of those options were viable, either because they wouldn't be accepted by the Federal Reserve, by the guidance of our Treasury Secretary or just by legal restrictions," White House press secretary Jen Psaki said on Tuesday.
At least one former top Obama-era official shared Yellen's assessment.
"We studied the platinum coin during the Obama administration and concluded it was not legally viable," Jason Furman, a former top economist for the Obama administration, said in an interview with Insider late last month. "The uncertainty around it would cause many of the same problems you would get from default. There is no other option here than Congress raising the debt ceiling."
Furman, now a Harvard University professor, said among the concerns raised during the Obama administration was the threat of lawsuits and dragging the Federal Reserve into a high-stakes political battle. The Fed is considered an independent institution.
"In general, we didn't think it was legal," he told Insider. "It creates its own hosts of problems."
Democrats set up a vote on Wednesday to suspend the debt limit through the end of next year, but its poised to crash into a blockade from Senate Republicans.
Yellen warned in the same CNBC interview that of a recession if the US defaulted.