It would mean the Treasury could raise money without borrowing. And that would render the debt ceiling irrelevant, neutralizing the power of conservative Republicans in Congress.
This is the first advantage cited by PIMCO CEO and Chief Investment Officer Mohamed El-Erian for creating the coin.
The second is that the coin would serve as a catalyst for Congress to finally consider both the annual budget and the debt limit instead of treating them separately as it currently—and dangerously—does now.
And the disadvantages?
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Those would include market concerns that the fires of Congressional discontent, dysfunction, and polarization would be exacerbated.
This would increase political risk and simultaneously dampen private sector job growth and investment.
Global economies could also view the move as potentially inflationary and could conclude that a world superpower had lost its way.
The very fact that it has commanded serious dialogue is a testament
to current lawmaker dysfunction. If what would have been unthinkable not so long ago becomes a reality, Congressional approval ratings would fall below 10%.
On the other hand, simply the decision to create the coin could serve as a catalyst for getting a very dysfunctional Congress to change the way it reaches important economic decisions.
The Treasury and the Fed finally spoke over the weekend
in opposition to creating the coin. The White House also stated that there are only two ways to address the debt limit: either increase the debt ceiling so the nation can pay its bills or throw the country into default.