Is Washington Considering Issuing IOUs in Order to Deal With The Fiscal Crisis?

President Barack Obama speaks with Speaker of the House John Boehner (R-Ohio) and Senate Majority Leader Harry Reid (D-Nev.) during debt ceiling negotiations at the White House on July 23, 2011. (Getty Images)

Move over, $1 trillion-dollar coin: There’s a new debt ceiling solution in town and it’s called government scrip (i.e. IOUs).

No, really. From the National Journal:

The $1 trillion platinum coin seems too wacky; the 14th amendment too risky. But could IOU’s be the solution to an impasse on raising the nation’s borrowing limit?

Yes, and President Obama should publicly adopt the idea, Edward Kleinbard, a University of Southern California law professor and former chief of staff to Congress’s Joint Committee on Taxation, argues in a Thursday New York Times op-ed. If lawmakers can’t reach an agreement before the nation hits its debt ceiling–which could happen as soon as next month — then Obama should have a backup plan of issuing IOU’s in place, Kleinbard argues.

“[Obama] 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.”

Kleinbard is hardly the first to propose the idea. Slate’s Matt Yglesias suggested it in early December. And New York Times Op-Ed columnist and Nobel Prize winner Paul Krugman argued for such IOU’s on Monday, though he called them “Moral Obligation Coupons.” In Krugman and Kleinbard, the idea has found two prominent proponents.

However, while this  solution may sound, well, pitiful, there’s probably a better argument to be made for issuing IOUs than minting a bazillion-dollar coin. We’re not saying it’s good argument, just that it’s probably better than the coin solution.

“The argument for IOUs is that people will feel secure in the fact that they’ll eventually get paid,” writes Hot Air’s Ed Morrissey, citing California’s 2009 decision to issue government scrip.

He adds that unless IOU payments are made, it will be disastrous for everyone involved.

“Maybe we should start addressing the actual problem, which is that the Obama administration is on track to spend a trillion or more dollars more than it receives for the fifth straight year,” he writes.

“We just gave Obama the tax hike he wanted, and which he promised would solve a large part of the problem.  How about working on the spending side now, and eliminate the need for coin tricks or federal scrip?”

Final Thought: While many agree with Mr. Morrissey’s point that government should reign in its spending, it’s not a sentiment shared by the Obama administration.

After all, as the president reportedly told House Speaker John Boehner (R-Ohio), “we don’t have a spending problem.”

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Front page photo courtesy Getty Images.