COULD THE U.S. GOVERNMENT ISSUE WARRANTS?

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V16 2013 INDEX E-SYLUM ARCHIVE

The E-Sylum: Volume 16, Number 2, January 13, 2013, Article 25

Here's a different idea. If the debt ceiling fight causes the U.S. government to have a cash shortfall, could/would it issue scrip? The state of California did just this in 2009 (see the earlier E-Sylum article referenced below). Here's an excerpt from the piece I heard Thursday evening on the Marketplace radio show. Host Kai Ryssdal interviewed USC professor Edward Kleinbard about his idea. -Editor

We’ve heard all this talk about the trillion dollar coin to solve the debt ceiling problem. But what USC professor Edward Kleinbard proposes something a little different in his op-ed for the New York Times:

“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.”

Kelinbard said the idea of IOUs is just less risky than the trillion dollar coin. He said it “stands on much firmer constitutional ground” and exposes the president to a lesser risk of impeachment.

Kleinbard argues that the IOU doesn’t promise to pay you any money at any particular time. The IOU would basically say “we’ll pay you money but we just can’t do it right now."That doesn't seem great for a 68-year-old on Social Security on the face of it -- but Kleinbard argues that government IOUs could be good for both banks and ordinary people.

“You turn around and sell it for a small discount, and the banks will say ‘we’ll buy it at a small discount’. Think what U.S. Treasury bills yield right now. If you bought this paper at a 1 percent discount and the issue was resolved in a month. You would be getting a return of 1 percent a month instead of 1 percent a year. The financial institutions would find this attractive,” said Kleinbard.

Kleinbard said neither an IOU program nor the trillion coin are good ideas, but it’s all about which plan is best to “defang an artificial crisis and enable us to have the debate we need to have about long term spending in regular order.”

Now that's an idea that actually makes some sense. Well, more sense than the trillion dollar coin idea. As Moy stated, the real problem is the debt and deficit, but the U.S. warrants of 2013 would sure make an interesting numismatic collectible. And each one left unredeemed would reduce the deficit by a corresponding amount. By the way, I don't think any E-Sylum reader ever came forward with an image of a 2009 California warrant. Some must exist somewhere, but they're rare puppies. And a great piece of numismatic history. -Editor

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