Treasury warrants on the table

However, there is [another] plausible course of action [in addition to the TPC], one that the president should publicly adopt in the coming weeks as his contingency plan should debt-ceiling negotiations falter. He 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.

The scrip would not violate the debt ceiling because it wouldn’t constitute a new borrowing of money backed by the credit of the United States. It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay. The president could therefore establish a scrip program by executive order without piling a constitutional crisis on top of a fiscal one.

To avoid any confusion with actual Treasury debt, and to be consistent with the law governing claims against the United States more generally, the scrip would not pay interest in most cases. And unlike debt, it would have no fixed maturity date but rather would become redeemable in cash only when the secretary of the Treasury was able to certify that there’s enough money available in the Treasury’s general fund to cover it.Finally, the scrip would be transferable, allowing financial institutions to buy it at a high percentage of its face value, knowing that the political crisis would almost certainly be resolved before long.

The federal Anti-Assignment Act generally prohibits the transfer of claims against the United States from one private actor to another, but the government could waive the act’s application, which is what the president would do here.

The strategy may sound far-fetched, but it has been used before: in fact, California relied on it as recently as 2009.

The New York Times | Opinion

The Debt Ceiling’s Escape Hatch

Edward D. Kleinbard, a former chief of staff at the Congressional Joint Committee on Taxation, is a law professor at the University of Southern California