Clever Solution To Federal Debt Limit Comes From Frequent Flyer Miles

U.S. politicians vote to spend money, and then separately vote to authorize borrowing money to fund that spending. Both Republicans and Democrats favor raising the ‘debt limit’ but Republicans want Democrats to have to say how much they favor borrowing to fund their spending plans, since Democrats currently control both houses of Congress and the Presidency.

That’s why Republicans haven’t been willing to raise the debt limit as a part of funding the government and avoiding a shutdown. They want Democrats to pass the debt limit as part of ‘reconciliation’ which would let them do it on a party line vote but would require them to name a number rather than just extending it to a specific point in the future.

In the midst of this political skirmish the idea has once again surfaced to have the Treasury mint a trillion dollar coin and deposit it at the Fed in order to avoid the need to borrow more money. So it’s worth remembering just where this idea originateed: one of the best frequent flyer miles deals.

  • The Wall Street Journal‘s Scott McCartney learned about the old miles bonanza of buying dollar coins from the US Mint with a credit card (with free shipping) and depositing those coins into the bank when he attended a frequent flyer event. He wrote about the technique in the journal.

  • That’s where lawyers and monetary policy experts saw it. And the idea of buying coins and just depositing them inspired the idea of a similar scheme with the Treasury and Fed.

I first wrote about buying coins from the U.S. Mint in June 2008. In the summer of 2009, the deal exploded as the Mint lifted the per-person cap on purchases.

After attention in the press, the Mint took some heat for letting the practice continue. And they started to scold some people for doing it in some pretty extreme ways.  But the deal continued on, it wasn’t actually killed at that time.

By the summer of 2010, the mint placed a limit of $1000 in purchases every 10 days.  But, of course, people continue to purchase what they were willing to sell. Some credit card programs, like US Bank Flexperks, stopped awarding points for the purchases. And Chase closed down accounts from some very high volume purchasers. But on the whole, things were still chugging along fine, even a couple of years after the deal had gotten public scrutiny. NPR covered it, highlighting that this deal was still alive, in mid-2011. And then it finally died.

In my own view the trillion dollar coin is a bad idea because of legal uncertainty. The time challenges would take to work through the courts would be terrible for markets and banking.

The really important question, though, is this: If the Treasury mints a trillion dollar coin, can I pay for it with a credit card? And, crucially, will my card issuer treat it as a cash advance?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Before the serious discussion starts…about using a credit card to buy the coin and getting miles for it…all I can say is hahaha.

  2. Imagine earning one trillion Skylines. You would almost have enough to book a round-trip business-class flight to Europe in Delta One.

  3. Raising the debt ceiling is the ultimate finger pointing game, and the politicians we have today (at all levels, in both parties) thrive on finger pointing rather than problem solving. I have some Zimbabwean money worth a trillion. I guess that’s where we’re headed.

  4. @DaveS I purchased about dozen of those a few years back. Framed some them, too. Made for a great gift.

  5. Let’s not forget the Simpsons episode where the US Government printed a trillion dollar bill to give to post-war Europe to help iit rebuild. (Mr. Burns stole it, and it was subsequently stolen from him by Fidel Castro.)

    That episode was from the late 1990’s, so I would argue the idea for a trillion dollar coin stems from that. (As a side note, given the mass stupidity often displayed by our politicians, one has to wonder sometimes if Homer Simpson would be better at running things!)

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