What Would Obama Do (If There's No Debt Ceiling Deal)?

President Obama says he won't negotiate about the borrowing limit. He says the Congress must raise the debt ceiling to pay for spending it's already OK'd. But Republicans say they'll use the threat of default to get more spending cuts from the White House. Obama still has some options if he and Congress can't reach an agreement.

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You might've chuckled a bit this week, if you heard about the trillion-dollar platinum coin plan, to perhaps address Washington, D.C.'s debt ceiling stalemate. But it will certainly be no laughing matter if the U.S. Congress refuses to raise the borrowing limit, and the U.S. government defaults on its debt. Global financial markets would likely plummet.

NPR's John Ydstie reports on some of the options the president has if he and Congress cannot reach an agreement.

JOHN YDSTIE, BYLINE: President Obama says he won't negotiate. He says the Congress must raise the debt ceiling to pay for spending it's already OK'd. But Republicans say they'll use the threat of default to get more spending cuts from the White House. Of course, the best outcome would be for the two parties to agree on the package of spending cuts they postponed for two months, to avoid the fiscal cliff. That could clear the way for hike in the debt ceiling.

But if faced with default, the president could consider a few options, says Donald Marron, a former director of the Congressional Budget Office; now at the Tax Policy Center. First, Marron says, delay some payments.

DONALD MARRON: You might pay Medicare doctors a week later than usual. You might pay government contractors two weeks later than usual.

YDSTIE: But former Fed Vice Chairman Alan Blinder says that's not as easy as it sounds.

ALAN BLINDER: It's not even so clear the government's computer programs are capable of doing that right. They're sort of on autopilot, to spit out millions and millions of checks.

YDSTIE: Even if the computers cooperated, says Blinder, deciding how to cut one out of every $4 the government spends each day, would be difficult.

BLINDER: You know that they're going to keep the Social Security checks coming; they're going to pay the military; they're going to pay the interest on the debt. And pretty soon, you're down to a very small corner of the budget that's going to have to absorb all the cuts.

YDSTIE: Another option, says Blinder, is for the president to invoke the 14th Amendment, which essentially says the government must pay its debts. But a huge legal battle would likely ensue, and the White House has ruled that out.

Marron says that brings us to the platinum coin.

MARRON: In principle, the Treasury secretary could issue high-denomination platinum coins, and use them as a way to finance the government if the debt limit isn't increased.

YDSTIE: The law that allows this is really intended for use in minting collectible coins, and Marron says he fervently hopes the parties can reach a deal.

MARRON: But if we got to the state of the world where the Treasury secretary faces this decision of do we default on the debt, or do we invoke a loophole; I am very strongly in the camp that I would like to see him invoke a loophole, rather than default.

YDSTIE: The way it would work, says Marron, is that the Treasury would mint a coin - or coins - in, say, $25 billion denominations and deposit them at the Federal Reserve; then draw on the funds to pay the government's bills. He says a trillion-dollar coin makes no sense. If the administration didn't want to involve the Fed, it could mint smaller denominations - in the 50- to $100 million range - and sell them to big banks or institutions.

MARRON: It's not something you want to embrace; it's not the way we ought to run a normal business. It really does sound like a "Simpsons" episode, or an "Austin Powers" sequel.

YDSTIE: But so far, the Obama administration hasn't explicitly ruled it out.

John Ydstie, NPR News, Washington.

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