How Obama Could Beat the Debt Ceiling and Go Out a Hero

By Ellen Brown.

Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile.

                  — Canadian Prime Minister William Lyon Mackenzie King, 1935

On November 3rd, the US government will again run out of money due to a debt ceiling artificially imposed by Congress. This is the third time in four years that a radical faction has taken the country to the brink of default to extort concessions that are at best only marginally related to the budget.

The debt ceiling is an unconstitutional gimmick that violates the 14th amendment, which says the validity of the government’s debt shall not be questioned. The debt was incurred by Congress when it passed the budget, and the money has been borrowed and spent. Congress cannot now refuse to pay.

One good gimmick deserves another. The debt ceiling could be eliminated for good, by restoring to the government its constitutional authority to create money. Article 1, Section 8, provides: “The Congress shall have the power to coin money [and] regulate the value thereof . . . .” The president could pay the government’s bills by issuing some large denomination coins by executive order.

When the Constitution was ratified, coins were the only officially recognized legal tender. By 1850, coins made up only about half the currency. Today, they make up less than one-half of one percent of the money supply – about 50 billion out of a $12 trillion circulating money supply (M2). These coins, along with about $25 billion in US Notes or Greenbacks originally issued during the Civil War, are all that is left of the Treasury’s money-creating power.

As the Bank of England recently acknowledged, the vast majority of the money supply is now created privately by banks as deposits when they make loans. The power to issue the national money supply needs to be returned to the people from whom it has been deceptively usurped. As Thomas Edison observed in the 1920s:

It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.

In Lincoln’s Footsteps 

In the early days of his presidency, Barack Obama claimed Abraham Lincoln as his role model. One of Lincoln’s less well known achievements was to avoid a massive debt to private banks at usurious interest rates by restoring an earlier form of government-issued money, the paper scrip of the American colonists. In the 1860s, these US Notes or Greenbacks constituted 40% of the national currency. Today, 40% of the circulating money supply would be $5 trillion.

This massive money-printing during the Civil War did not lead to hyperinflation. US Notes suffered a drop in value as against gold, but according to Milton Friedman and Anna Schwarz in A Monetary History of the United States, 1867-1960, this was not due to “just printing money” but was caused by trade imbalances with foreign trading partners on the gold standard.

The Greenbacks aided the Union not only in winning the war but in funding a period of unprecedented economic expansion. Lincoln’s government created the greatest industrial giant the world had yet seen. The steel industry was launched, a continental railroad system was created, a new era of farm machinery and cheap tools was promoted, free higher education was established, government support was provided to all branches of science, the Bureau of Mines was organized, and labor productivity was increased by 50 to 75 percent.

President Obama could follow the lead of his mentor and beat the debt ceiling by calling for a new issue of debt-free US Notes. The problem with that alternative is that it would require legislation, an impossibility before the looming November 3rd debt ceiling deadline.

Another way to solve the crisis with government-issued money was proposed by Republican presidential candidate Ron Paul and endorsed by Democratic Representative Alan Grayson during the last debt ceiling crisis: the Federal Reserve could be ordered to transfer to the Treasury the federal securities it has purchased with accounting entries through “quantitative easing.” The Treasury could then just void out this part of the debt, which currently tallies in at $2.7 trillion. That alternative too would be legal, but it would require persuading the Federal Reserve to act.

A third alternative, which could be done very quickly by executive order, would be for the federal government to exercise its constitutional power to “coin money and regulate the value thereof” by minting one or more trillion dollar platinum coins.

A Treasury Issue of Special Coins 

The idea of minting large denomination coins to solve economic problems was first suggested in the early 1980s by a chairman of the Coinage Subcommittee of the House of Representatives. He observed that the Constitution gives Congress the power to coin money and regulate its value, and that no limit is put on the value of the coins it creates. He said the government could pay off its entire debt with some billion dollar coins. I wrote about this in Web of Debt in 2007 and said it would have to be a trillion dollar coin today.

In 1982, however, Congress chose to choke off this remaining vestige of its money-creating power by imposing limits on the amounts and denominations of most coins. The one exception was the platinum coin, which a special provision allows to be minted in any amount for commemorative purposes. (31 U.S. Code § 5112.)

In 2013, Carlos Mucha, an attorney blogging under the pseudonym Beowulf, proposed issuing a platinum coin to capitalize on this loophole. With the endless gridlock in Congress over the debt ceiling, the proposal got picked up by Paul Krugman and some other economists as a way to move forward.

Philip Diehl, former head of the US Mint and co-author of the platinum coin law, confirmed that the coin would be legal tender. He said:

In minting the $1 trillion platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years . . . under power expressly granted to Congress in the Constitution (Article 1, Section 8).

Prof. Randall Wray explained that the coin would not circulate but would be deposited in the government’s account at the Fed, so it would not inflate the circulating money supply. The budget would still need Congressional approval. To keep a lid on spending, Congress would just need to abide by some basic rules of economics. It could spend on goods and services up to full employment without creating price inflation (since supply and demand would rise together). After that, it would need to tax — not to fund the budget, but to shrink the circulating money supply and avoid driving up prices with excess demand.

Why Not Pay Off the Whole Federal Debt? 

As the chairman of the Coinage Subcommittee observed in the 1980s, the entire federal debt could actually be paid in this way. The Federal Reserve has already established that it can issue $4.5 trillion in accounting-entry QE without triggering hyperinflation. In fact, it has not succeeded in triggering the modest inflation the exercise was designed for. As with QE, paying the federal debt in this way would just be an asset swap, replacing an interest-bearing obligation with a non-interest-bearing one. The market for goods and services would not be flooded with “new” money that would inflate the prices of consumer goods, because the bond holders would not consider themselves any richer than before. They presumably had their money in bonds in the first place because they wanted to save it rather than spend it. They would no doubt continue to save it, either as cash or by investing it in some other interest-generating securities.

The ease with which the government’s debt could be paid in this way was demonstrated in January 2004, when the US Treasury called a 30-year bond issue before its due date. The bonds were redeemed “at par” to avoid a 9-1/8% interest rate, which was then well above market rates. The Treasury’s January 15, 2004 announcement said that payment would be made “in book entry form,” meaning numbers were simply entered into the Treasury’s online money market fund (Treasury Direct). In effect, the money just moved from an online savings account to an online depository account, converting interest-bearing bonds into non-interest-bearing cash.

Where did the Treasury get the money to refinance this $3 billion bond issue at a lower interest rate? Whether it came from the private banking system or from the Federal Reserve, it was no doubt created out of thin air. As Federal Reserve Board Chairman Marriner Eccles  testified before the House Banking and Currency Committee in 1935:

When the banks buy a billion dollars of Government bonds as they are offered . . . they actually create, by a bookkeeping entry, a billion dollars.

The US government can just as easily create this money by a bookkeeping entry itself. It can and it should, to avoid the interest charges that compound the national debt and make it unrepayable. Quoting Thomas Edison again:

If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way.


Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at Listen to “It’s Our Money with Ellen Brown” on PRN.FM

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  • Carl_Herman

    Thanks, Ellen. Yes, the great news is that we have solutions ready now to fully invest in infrastructure, provide that employment to anyone wanting to create in this way, and we’ll have falling prices as infrastructure provides more economic productivity than investment cost.

    As in sooooo many areas, we have the solutions. The public is stopped from recognizing these answers by corporate media and the .01% political “leaders” who keep herding us for empire goals (and likely to cull the herd of sheeple).

  • Impending Sky

    No thanks. While the coins might command plenty of Jet-A initially, they would represent a hazard when thrown from helicopters.

  • wunsacon

    “Go out a Hero”?? Ellen, sorry but I can’t even read past that headline. If you believe — as I do — that Obama’s record is practically indistinguishable from Dubya’s, then I don’t see how you could dare even conceive of Obama making up for his choices to date.

  • I know government schooling trumps facts allot, but Lincoln is no hero of the Republic. Obama is doing as Lincoln had before him!

    Here is some more information on Lincoln most do not know, and I also included is a clear understanding of the 14th Amendment I discovered in my own research of history.

    Thomas DiLorenzo – The Real Abe Lincoln

    From The Tom Woods Show, Professor Thomas DiLorenzo shares the gist of his scholarly works on Abe Lincoln. He demonstrates the reality of Abe is very different from the fairly tale version taught in government schools.

    14th Amendment Citizenship: Citizen = SLAVE

    Prior to the alleged ratification of the 14th Amendment, there was no legal definition of a “citizen of the United States”, as everyone had primary citizenship in one of the several states. The Constitution referred to the sovereign state citizen, and no one else. Those who went to Washington, D.C. or outside the several states were commonly called “citizens of the United States.” In the Constitution for the United States, the term was used to identify state citizens who were eligible under the suffrage laws to hold office, and they were required under the Constitution to have primary allegiance to one of the several states.

  • December 31, 1863 (Thursday – New Year’s Eve) Lincoln Signs the Federal Conscription Act ‘THE GLOOMIEST YEAR OF OUR STRUGGLE’

  • jadan

    The problem with money is that everyone takes it too seriously so that it becomes like an idol that commands worship and obedience. This money worship prevents us from thinking creatively. Ellen Brown’s perspective is frivolous to the doleful servants of money who are outraged at the idea of a trillion dollar coin. This is just a joke! Yet the same people don’t laugh when a bank creates money ex nihilo like a magician pulling a rabbit out of a hat. You borrow money from the bank to buy yourself some new wheels and that money is now your debt and you pay interest on it. And you might think that this money belonged to some one else before it was loaned to you and the bank is just brokering the loan, but you’d be wrong. The money didn’t exist. It came into existence when you signed on the dotted line.

    Ellen Brown is trying to change the way we understand money. Whatever else it may be, money is a public utility. Its purpose is to serve the public interest. The money power became a franchise of the elite minority, however, from the beginning when George Washington ignored the Constitution and made his buddy Alexander Hamilton Secretary of the Treasury. The money system was privatized immediately. Commentators scratch their heads and wonder why wealth is concentrated at the top. It’s because the 1% own and operate the Federal Reserve system, the private money franchise that we know today.

    In a democracy, the money power should be vested in the people’s government as per our Constitution, Article 1, Section 8. We do not live in a democracy, however. Oligarchy is the nature of the system we stupidly call a “democracy”. In an oligarchy, a wealthy minority operates the monetary system in its own interest. Debt is the whip this minority uses to keep the mass of the people in line. Students are enslaved by debt before they enter into the work force and they cannot ever escape this burden, even through bankruptcy. This is weird, perverse. This is not democracy.

    The sacred national debt the idolaters use to punish the people is not sacred at all. If we were to abide by our own Constitution, money would become a public utility, not a private utility for an elite group of creditors to dominate the majority.

  • Clark

    “The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements, arrived at in frequent private meetings and conferences.
    The apex of the system was the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the worlds’ central banks which were themselves private corporations. The growth of financial capitalism made possible a centralization of world economic control and use of this power for the direct benefit of financiers and the indirect injury of all other economic groups.”

    Tragedy and Hope: A History of The World in Our
    Time (Macmillan Company, 1966,) Professor Carroll Quigley of Georgetown
    University, highly esteemed by his former student, William Jefferson Blythe