Are there other financial options for the US government other than Congress approving a higher debt ceiling? Analyst Jaret Seiberg from the Washington Research Group has looked at two that are being discussed — and he’s dismissive of both:
The President could assert that that 14th amendment negates the requirement for Congress to raise the debt ceiling. Or Treasury could mint a $1 trillion platinum coin and deposit it at the Federal Reserve. Neither are great options. We see chaos if the market has to confront Treasuries where the debt is backed by Congress and those where it is not backed by Congress.
And the $1 trillion coin would expand the money supply by a considerable amount, which could spark serious inflation. And it seems like something out of a Simpson’s episode. So we are not even sure anyone would take this as an actual solution. All of this economic chaos could worsen the economic downturn, which would further weaken credit conditions and impose higher losses on banks.
For banks, this might be as bad as an actual default. The economic uncertainty could cause lending to grind to a halt, the disruptions could cause unemployment to spike which means higher loan losses, and interest rates could skyrocket as the market is unsure whether one of these creative solutions is even legal.
That sounds about right. Far better for Democrats and Republicans to agree on spending and entitlement cuts and raise the debt ceiling.