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Sovereign Default, The Debt Ceiling, And The $1 Trillion Coin



  • The US federal government faces another debt ceiling drama this month.
  • An overview of why the debt ceiling exists and what happens if US Treasuries are defaulted on.
  • A look at the controversial $1 trillion platinum coin loophole that potentially allows the Treasury Department to go around the debt ceiling.
  • Looking for a helping hand in the market? Members of Stock Waves get exclusive ideas and guidance to navigate any climate. Learn More »

Platinum ingot

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The US debt ceiling is in the news again due to Congressional gridlock, along with the possibility of a US sovereign default and the unintuitive idea of the US Treasury Department minting a trillion-dollar platinum coin

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This article was written by

Lyn Alden Schwartzer profile picture
With a background that blends engineering and finance, I cover value investing with a global macro overlay. My focus is on long-term fundamental investing, primarily in equities but also in precious metals and other asset classes when appropriate.


My work can be found at LynAlden.com, ElliotWaveTrader.net, and within the Seeking Alpha marketplace where I work with the Stock Waves team to blend their technical analysis with my fundamental analysis for high-probability long-term setups.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Comments (653)

Eric Goovenhoff makes some interesting points.
A lot of increased cost of health care is new drugs, new technology etc.
As far as paying back inflation adjusted, true enough, however many bonds had capital gains if you chose to sell them along the way.
As far as defaulting, the contractual arrangement was to pay back in dollars, so that is why it is not considered a default, though Eric's point is a good one.
In 2008/2009, there was some deflation, so in that year, you were paid back in appreciated dollars, however that was the exception.
Another great recession could result in a similar exception.
Bold Investments profile picture
Let's get real: The US has been defaulting every year since we pay the debt with dollars of lower value. We've literally been borrowing $1 & paying it back with $0.96 for the last 40 years. Just look at the prices of anything related to credit & therefore dollar expansion / anything the Gov gets involved in: houses, cars, college, healthcare, (Remember when United Healthcare was in full support of Obamacare & how it would make healthcare cheaper?) That worked out well

When the Fed & Gov are not involved, prices stabilize & fall
@Eric Groovenhoff That is not what defaulting is. How many fiat currencies appreciate annually, as the norm?

It's called constructive default. And one day the bond market will run out of fools...
@mgrund1 Then call it that, not default
coffeebreak profile picture
"SA has hidden pretty much all of its useful content behind a paywall."
some content is still avaiable.... you have more than enough time to read and reread the article more than 10x, so no biggie. The article is quite spectacular and educational, simply mindblowing.... a true masterpiece. thank you.
Wonder how many people screaming socialist receive social security, disability, medicare/medicaid, drive on public roads, use regulated electricity, public water/sewer systems, public libraries, public schools, enjoy public/national parks, off-roading on public land, hunting on public land, fishing in public waters...? Lying to others may be for a bad/good reason but lying to yourself is always self-destructive.
M Elan profile picture
@PTR1234 Do you pay into Social Security and Medicare? I don't think anybody is moaning about actual infrastructure spending, which is most of what you listed there.
DKB2 profile picture
@M Elan
Perhaps, but infrastructure spending is still socialism.
If they are not moaning, it just high lights their hypocrisy.
They should say what they mean and mean what they say.

Happy Trails...
@DKB2 , Incorrect. Socialism is wealth redistribution.
SS is partially socialism because the poor get more back.
Roads are not socialism - not the government taking from one to give to another.
John Wilson profile picture
"There’s a sentence in the 14th Amendment to the US Constitution that says:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned"
Except the 14th Amendment cannot stop foreign central banks and investors from questioning the US Public debt.

They will question the US Public debt then they go on $3.5 trillion spending binges in one shot

Guess the writers of the 14 Amendment did not anticipate a socialist clown like Biden being president.
c4dancer profile picture
@John Wilson You have insulted clowns. It's possible you insulted socialists too but the jury's still out on that one.
@John Wilson firstly, DT spent beyond imagination first, so why blame Biden. Maybe he just learned a lesson from his predecessor? All these doomsday scenarios are getting old. The huge public spending is exactly what is keeping the market from doing tanking. But those who want to see it crash don't get it or don't want to. Once these trillion dollar spending sprees are over, watch out below.

Because he has proposed to double that?

As for your idiotic claim that public spending prevents crashes.. history is coming...

"Spending sprees always end. Just like bull markets.. the US century is over . So let's go out with a bang."

- Biden bet on it.
So to summarize the default scenario:
*) The only value left in the world will be in "hard assets" owned by rich ppl
*) The rest of us will be slaves forever.

So WHY IN THE WORLD would today's super-rich ppl be trying to cause a default...WAIT A MINUTE...
M Elan profile picture
@alphatraz Why would you think super rich are trying to cause a default? Their only concern is to escape if the Squad chases us into full Weimar. The super rich are also much nastier poker players.
@M Elan yeah, those Super Rich do stuff like firing a dude ONE DAY before he retires, in a mean-spirited attempt to steal the pension he has earned, just to try to ice ppl from speaking the truth. Talk about nasty
M Elan profile picture
@alphatraz any power does that including your beloved idealistic politicians. You want to fight the power then get ready to sacrifice something. Life ain’t fair.
An excellent, balanced article on a subject everyone thinks they know a lot about, but most do not. Thanks for writing it, Lyn.

This constitutional republic, including the US supreme court, was corroded by corruption over a very long time period, and the foundation, your "capstone in the upside down pyramid," is starting to crumble.

A large number of us expected the period of needing
"non-perishable food and clean water on hand, along with physical valuables to trade" to have already occurred. (Try to currently find enough steel or lumber to build a small building, or try to find a vehicle to buy, at a "reasonable" price.)

I am, and have been for many moons, LONG "commodities and other scarce assets." Primarily in one of the safest, and most cost effective, places on planet Earth to produce many of those commodities and scarce assets. (West Texas).
@Westexr are you able to share thru what means you are long commodities- direct or thru indiv stocks, etf's etc??
@Rick Both Per your request:

Physical gold and silver. Stored at the Texas Bullion Depository.


I am long energy stocks. I prefer SM Energy, which is a pure Texas play. I am also long Devon Energy which is, almost, a pure Texas and Oklahoma play.

I am long several small mining company stocks that are based primarily in Texas, Nevada, Australia, Japan, and the Yukon.
@Westexr thx for sharing- Im long CVX, XOM, EPD, SUN, OKE, ET

Have a little GLD,SLV ,ADM and NTR

But still hold lots of stocks in all different sectors. I'm somewhat paralyzed and anxious lately! But have always held thru thick and thin!
I'll confess- our politicians are making me crazy! Either dumb or evil!
This is extraordinary, Lyn. Been learning a lot reading your stuff--thanks much!
The FED could trade the market by front running its decisions. Since it transfers its profits to the Treasury, the problem would be solved quickly. Just cancel the resignation of the two blokes who are particularly adept at this kind of trade.
M Elan profile picture
@Fabien Hug Just two? I think it's worse than two.
@Fabien Hug

The day that happens...others will front run them... blowing bubbles never ends well..but it does end.
When the U.S. Treasury Department won't print dollars unless they're borrowed, then what do you expect but 'debt ceiling' issues? This government is run by colonial scum politics, and we might as well be electing Christopher Columbus to the presidency as Joe Biden. Long live the King!
@exile on the board congrats to your first comment! Did you read the article? If so, how come you missed the point? It's pretty understandable for laypeople too.
@exile on the board I'll nominate Condi Rice for President- Tulsi can be VP- maybe they can work together???
@Rick Both You might be the only person making such a nomination.
The debt can't be paid, so just keep inflating the dollar per the status quo.
ANG Traders profile picture
Inflating the dollar? Huh?
So default is averted for next 2 weeks. But as long as Biden is President he will try to find opportunities to spend more. Lot more money printing is going to happen in his term. Also as he increases taxes the economy will slow down. The best way to protect wealth in an administration who is determined to keep spending is to buy Bitcoin.
M Elan profile picture
@adaveinus2 when things get serious Bitcoin will get clipped, too. You don't really believe the lawyers will ignore Bitcoin, do you?
@adaveinus2 ROFLMAO. Bitcoin will be the first to get killed when people run out of money. I mean MONEY, not a big fat nothing. 99% of retail has no idea what the heck it is even.
c4dancer profile picture
@M Elan As long as five out of nine particular lawyers are fine with bitcoin, what the rest of them think is irrelevant in the long run.
Most complex subjects can be reduced, seen in their simplicity. Real reason for a trillion dollar coin is inflation. At one time there was a half penny. Other than collector's value, there is nothing you can buy for half a penny. For that matter there is nothing you can buy for a penny. It is illegal to do so but our current penny is worth more than a penny in scrap copper. Reality, we can use our minds to justify our current INSANITY including a 30 trillion dollar national debt. Bankruptcy as an option? A huge part of the national debt is owned by social security. HUH? We are buying our own debt with debt..
ANG Traders profile picture
The wrong question keeps being asked and answered incorrectly. The question is not "can we pay to provision ourselves?". The question is "can we resource it?". We can pay any price, if the resources are there.
@ANG Traders "Whatever we can do, we can afford" JMK
ANG Traders profile picture
@Daniel Sternick
The dollar is a transferable tax credit that functions as a virtual entity that can release real resources into the economy (labor and goods).
gametv profile picture
excellent article, lots of detailed information.

but what you have failed to discuss is the current situation with debt issuance and what has driven interest rates and stock prices and what we can expect going forward as the debt ceiling is lifted.
ok- what, in your opinion, are the best way to invest in these "Real Assets" for the high net worth retain investor? suggestions are appreciated- thx much!
c4dancer profile picture
@Rick Both If you have a high net worth, you can probably afford her service.
@c4dancer was just looking at it- didn't realize she had a service!
Philip Mause profile picture
Next question. Congress can repeal a law by implication by taking action after the law is passed which new action does not refer to the old law but which new action implies the repeal of the old law.
So when Congress passes a debt ceiling and subsequently passes tax and spending legislation which necessarily requires that the debt be increased above that ceiling, why can't it be argued that Congress itself has already repealed the debt ceiling by implication due to its subsequent action which necessitates the outcome that the debt ceiling will in fact be exceeded?
Philip Mause profile picture
A couple of questions.
First. So, if the Treasury has certain bonds maturing as well as interest payments coming due, it cannot avoid increasing the national debt by simply refusing to make those payments. The accruing interest will add to the national debt over time even if the Treasury takes no action and refused to pay the interest which accrues every day. So simply neglecting to pay a bond that is maturing does not avoid the result of increasing the national debt any more than I can reduce my personal debt by simply neglecting to pay my obligations.
So is the statute creating the debt ceiling worded in such a way that it simply prohibits the issuance of new bonds but does not prohibit the increase in the national debt due to unpaid accruing interest over time? If not, why not issue new bonds and pay obligations as they become due and argue that the Treasury is not exceeded the debt limit by that action because the debt limit would have been exceeded even if the Treasury had not taken that action?
Charles M. profile picture
This is one of the best articles you have written and not just for the subject but the clarity.
The way this was written makes it quite easy to understand.
Here we Go Again.

- 2011 Debt Ceiling Crisis.

In early 2011 (April to May), Congress and Pres. Obama could not decide whether to raise the Debt Ceiling or not. By June or July 2011, their indecision became public as they bicker using the mass media their megaphone that resulted into the SnP500 to collapse by about 9-10% toward August 2011 low as the US Debt Rating was downgraded from Triple A to AA+.

- Nothing got resolved in 2011.

By mid-August 2011 the EU Debt Crisis hit a home run, and the SnP500 collapsed very badly toward October 2011 bottom with overall 21.53% loss. Half of the damage due to US Debt Downgrade the other half caused by EU Debt Crisis.

Prior to that in 2010 when the PIIGS Crisis happened, I was expecting some kind of Fiscal Debt Crises to happen in Europe as well as in the USA caused by massive reductions in Tax Receipts during and after the 2008/09 Great Financial Crisis. Europe was the first to buckle down.

- 2012 Fiscal Cliff Crisis.

By early 2012, CNBC blew the horn, so to speak, by highlighting the incoming Fiscal Cliff Crisis and the possibility of a Debt Default since Congress did not do anything to raise the Debt Ceiling the prior year.

Congress was inclined to default but Warren Buffett intervened by telling Congress it took a century for the US to keep shoring up it's global credibility by not defaulting on any obligations. And so a default was averted and Congress initiated a 'Refresher Course' for newbie members on the legislative process and their obligations under the law, back then there were far too many young members of Congress that had been elected and were the ones most eager for the US to default on it's debt. SnP500 collapsed by 10.94% from April to June 2012 during that most trying time, and I was almost very ready to push the SELL button if Mr. Buffett did not intervene.

October to November 2011 the Fiscal Cliff Crisis remained unresolved in it's entirety. Hence to prevent another Fiscal Cliff Crisis from happening Congress initiated a Sequestration Process in order to limit Debt Ceiling Upgrades in the future. I forgot how long the sequestration would last, perhaps it expired already that's why Congress was able to provide $2.2Trillions of stimulus programs last year for Covid19 Pandemic Crisis. At any rate, the sequestration agenda avoided a Government Lockdown in late 2012 and SnP500 collapsed by only 8.9% instead of the expected total collapse of the economy in previous months if the debt ceiling was not upgraded.


There were so many news of Potential Lockdowns after the Sequestration was engineered and government still kept spending beyond means. A few times, the government actually locked down for days/weeks and the SnP500 ignored them almost entirely being too 'exhausted' by Congress machinations.

Once a big 'issue' or crisis became known to investors, they usually would 'Price In' that issue or crisis as fast as possible then move on the the next expected crisis to again to price-in as early as possible.

IF an issue kept dragging on for long, then it becomes a Non-Issue per se as more investors became 'immune' to those same particular issues. Hence, as you can see, the SnP500 keeps making higher-highs and higher-lows despite the most recent Fiscal Debt Ceiling being reached and another potential Fiscal Cliff Crisis could happen again like what happened in April to June 2012 wherein Congress almost voted for the US Debt to be defaulted.


For as long as the current 'Fiscal Cliff Crisis' don't result into a Default, then the ensuing potential government lockdown(s) would be par-for-the-course for many investors already immune to this issue.

If a default actually happens and the US Debt Rating got downgraded again - that's an unexpected event and most likely will result into another crisis and the SnP500 should collapse at least 10-20%, if not an outright bear market.

Cheers and Good Luck.
@aarc glad to see you still kicking. However the point of the article was lost in the deliberation. There is no such thing as the government spending beyond means. If they gave you the printing press, would you ever run out of money? Assuming you would not be stupid enough to print a gazillion dollars and try to buy the whole country, in which case everybody would recognize you for a con and lock you up, or worse, of course. If you kept a low profile and printed just enough to be stinking rich but would not go around boasting about it, nobody would even notice! And that's the point.

By October 2012, the debt ceiling remained unresolved in it's entirety, hence Congress decided to initiate a Sequestration Process to limit future Debt Ceiling Upgrades.

- Sequestration: www.google.com/...

My point is that this Debt Default thing-ga-ding has been going on for decades and decades and has become a Systemic Problem for the government. Nobody really knows when it will become acute.

Along with many other issues such as Health Care Problem that Obama sought to solve but not very successful; the Flight of Corporate America since 1990s caused by far too many legislation was supposed to be handled by courageous Trump but was not successful as Congress was not inclined to reduce them thru legislation; the Infrastructure Predicament that has been going on for decades is now supposed to be corrected by Biden but still in deliberation process; the Social Security Dilemma that has yet to be put on the table I don't know which future president will be tasked to solve that systemic problem that has been discussed for decades on ends.


Those 'social issues' and other government systemic problems are far too numerous to start with.

Hence, Buffett kept telling investors NOT to decide their investments based on recurrent issues that may never end. But rather on company fundamentals and the century-old resiliency of the economy to weather many, if not all, economic problems based on politics and their constant bickering - in order to gain support from their constituents.

Bickering = business as usual for Congress and the President.

Good Luck.
The Uber rich treasury holders will not let a default happen. They will much sooner kick some congressman arse. Not to mention the voters who would not appreciate not getting the checks.
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