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January 04, 2013 5:38 PM Ridiculous Times Call for Ridiculous Platinum-Based Measures

By Ryan Cooper

As we look down the barrel of another pointless debt ceiling crisis, several folks have managed to push a rather improbable-sounding option for sidestepping the ceiling through a legal loophole. It involves a trillion-dollar platinum coin. Dylan Matthews has the history, featuring Mike Castle, Matt Yglesias has the specific statute language and a Rooseveltian precedent, and Paul Krugman explains it thus:

The peculiar exception is that clause allowing the Treasury to mint platinum coins in any denomination it chooses. Of course this was intended as a way to issue commemorative coins and stuff, not as a fiscal measure; but at least as I understand it, the letter of the law would allow Treasury to stamp out a platinum coin, say it’s worth a trillion dollars, and deposit it at the Fed — thereby avoiding the need to issue debt.

This seems to set something twisting in the guts of some folks, sending them into paroxysms of incredulity. Kevin Drum is relatively reasonable arguing that it would be illegal, though Yale law professor Jack Balkin and a former head of the US Mint disagree.

On the other hand, Heidi Moore’s eyes roll so far back in her head they come back around, like some archly dismissive slot machine:

This is an elegant solution - if you are a cartoon villain given to sitting in a vast underground bunker and innovating plans for world domination while petting a white cat. It makes less sense for real mortals. In fact, it has all the aspects of a group of well-financed mad scientists plotting to create a giant slingshot to avert an asteroid hurtling towards the earth.

Well, debate over! In seriousness, her piece has a couple bald inaccuracies; this one in particular:

The mint could, on the direction of Treasury, just make a platinum-finished coin that bears the face value of $1tn, but that would just create a nonsensical level of inflation in the value of the US dollar.

I tire of pointing this out, but there is no such thing as immaculate inflation. Let’s remember where we stand. The federal government is currently spending more than they take in revenue. The amount of spending is determined by congressional appropriations, signed into law by the president. The executive is thus legally obligated to spend at the levels specified for the various agencies. Now Congress is threatening to not allow the government to borrow the money they already legally obliged him to spend, creating an economic cataclysm in the process.

All the coin option is doing is creating additional spending capacity through legal trickery. It would have the same effect on inflation that borrowing the money would; in fact, it’s identical in the end to just borrowing more. As Krugman points out:

In reality, to pursue the thought further, the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back. So this is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand.

From my seat the platinum option looks like a plainly legal and reasonable option. I’m no lawyer, of course, and I’d listen to counterarguments. But what really chafes my strap is the snidely dismissive tone of Moore and company. They are abusing the sphere of deviance, in a way which reminds me very strongly of how journalists treated marijuana legalization a decade ago.

It’s striking especially that Moore doesn’t treat the people threatening to hold the US economy hostage to extract unrelated policy concessions with the same disdain she shows for the people trying to cook up a workaround. I agree, minting trillion dollar coins sounds silly. But hitting the debt ceiling would be deadly serious, and doing silly-sounding things is a small price to pay for avoiding pointless economic crisis.

Josh Barro has an actually reasonable solution dealing with all these problems at a stroke:

If Republicans start issuing a list of demands that must be met before they will raise the debt ceiling, Obama should simply say that he will issue platinum coins as necessary to pay government bills if he cannot borrow. But, to avoid causing long-term inflation expectations to skyrocket, he should pledge that he will have the Treasury issue enough bonds to buy back all the newly issued currency as soon as it is allowed to do so.
And then he should offer to sign a bill revoking his authority to issue platinum coins — so long as that bill also abolishes the debt ceiling. The executive branch will give up its unwarranted power to print if the legislative branch will give up its unwarranted restriction on borrowing to cover already appropriated obligations.

Probably the biggest obstacle to the platinum solution is the incredulity it inspires—I’ve yet to see a counterargument that doesn’t lean very heavily on simple disbelief. If Moore can come up with legal rationales against it, I’m all ears, but the snide tone is only strengthening the hand of the economic kidnappers.

@ryanlcooper

Ryan Cooper is a National Correspondent at The Week, and a former web editor of the Washington Monthly. Find him on Twitter: @ryanlcooper

Comments

  • c u n d gulag on January 04, 2013 5:58 PM:

    Sorry, but I'll repeat my comment from a prior post - not because it was so great, but because I'm kind of bushed after cooking dinner:

    I like "The Trillion Dollar Coin" idea.

    It may, or may not, prove to be legal.

    Yes, it's drastic, and the GOP will be up in arms, wailing for Obama's impeachment - but, with a Democratic Senate, that move by the House would prove to be the grandest Kabuki display of all time - even greater than Clinton's BJ.

    And while they scream that what the President is doing is drastic and unconstitutional, and while they drag it through the courts to the SCOTUS, the President and Democrats can point out that it is, indeed a drastic move - but one necessary to prevent the Republican Nihilists and Terrorists in Congress, from completely destroying the full faith and credit of this country by having a power-grab/hissy-fit, OVER PAYING FOR BILLS THEY ALREADY FECKIN' PASSED!!!

    And unltimately, I don't care if the courts think it'll be legal or not.

    Just make it, to make the Conservatives mad!

    And to piss them off even further, slap George W. Bush's arrogant, petulant, smirky, puss on it!!!

    And on the back, put an image of the Twin Towers burning; and the words, "Afghanistan," "Iraq," "Big Pharma Give-away," "Torture," and "Deregulated Wall Street Meltdown."

    The President could wear the model of that coin to the State of the Union Address.

    And then display the coin, front and back, on the White House website.

  • Memekiller on January 04, 2013 6:09 PM:

    It behooves Obama to dismiss these options to put the pressure on the GOP to cave. If they think they can default and Obama does this run-around they can fight in the courts or call for impeachment for, then they're going to default. If not raising the debt ceiling destroys the full faith and credit of the US, then they'll cave. If they don't, then we can consider such drastic measures as a last resort because caving into their demands just isn't an option.

  • N.Wells on January 04, 2013 6:47 PM:

    CUND Gulag: The idea of Bush on the coin is absolutely perfect, on all levels. But perhaps Reagan on the other side. I never thought I'd want to see either one of them on anything, but that would be ideal.

  • Rick B on January 04, 2013 6:49 PM:

    What is really important about this whole issue is that the U.S. government can issue all the money it wants any time it wants to. That's what the entire Gold Bug idiocy is about. Gold bugs think that tying the total amount of currency in circulation to the total amount of monetary gold that exists is a limitation on government issuance of currency. Forget it. The government simply needs to say it will accept a certain weight of gold at a higher rate to pay taxes and that new, higher rate become the new Value of gold.

    There is no limit on the amount of money the federal government can put into circulation except the fear of inflation! Period. The political repercussions of creating excessive inflation (meaning inflation beyond that which actually grows the economy by putting more people to work) are the only limitations on the federal government. At all levels below the federal government normal accounting practices require that the outgo be matched by income, but at the very top - the federal government, that simply is not a fact.

    Is there a danger that the federal government will issue or declare so much money in existence that we would get runaway inflation? Only if people who can anticipate the future into next Saturday are excluded from governmnet - meaning the idiot teabaggers. Sooner or later the tea baggers will misuse the power of the federal government to print money if those idiots are given real power.

    There is nothing wrong with playing the platinum coin gambit. The teabaggers will hate it because it removes the fiction that they have power. The bankers who control the personnel in the Federal Reserve will not allow runaway inflation. Have no fear. Those guys will not destroy the economy that has made them powerful. But the economists (note the distinction between economists and accounting-controlled bankers) like Bernanke will at least play the game to stop the debt ceiling idiocy.

    The debt limit is an artificial accounting gimmick to be used to club the President into submission. It should be ignored when it destroys economies - as in Spain and Greece and in the U.S. Congress.

  • Fess on January 04, 2013 6:51 PM:

    I dunno, but I think the idea is growing on me.

  • Doug on January 04, 2013 7:09 PM:

    Should the President ask my opinion, I'd say keep the $1 trillion platinum coin in reserve. Any questions to the President about the "debt ceiling" should be answered with "That's the responsibility of Congress."
    It's up to the Republican leadership in the House to either introduce a clean bill that raises the "ceiling" or a bill that removes the "ceiling" permanently. Boehner and Co. should be let alone to solve it.
    Only if nothing is done by the House should President Obama consider the coin idea, citing the legislation that gives him the authority to issue such coins.
    Personally, I don't think it will get to that. Boehner's already dumped the "Hastert Rule" once, there's no reason to believe he won't do so again. Nor do I think there are enough votes to replace him.
    And then there's always the possibility of some sort of deal with Rep. Pelosi...

  • Citizen Alan on January 04, 2013 7:31 PM:

    Frankly, I think the platinum coin idea is quite restrained compared to the idea I'm toying around with: wait till the GOoPers are in caucus and then send in Seal Team Six to deal with them like the terrorists they are.

  • zandru on January 04, 2013 7:36 PM:

    Why petting "a white cat"? Wouldn't a black cat be more eeee-vil?

    If Bush Jr's face is on one side and Reagan's on the other, how will folks be able to tell which is heads and which is tails?

    While I like the platinum threat in exchange for eliminating the bizarre "debt ceiling" (what's the history of that thing, anyway??), there are at least two big factors that would ruin this otherwise nice solution: The President's suboptimal negotiating skills, and the impeachment trap.

    Any extreme action that the President might take to preserve the full faith&credit of the US would likely be taken as an "impeachable offense" by certain crazies. I think this is no coincidence...

  • atlasfugged on January 04, 2013 7:41 PM:

    I think Heidi Moore et al. are under the impression that minting that $1-trillion coin will increase the money supply by that dollar amount. They probably vaguely recall learning in their Econ 101 course that increasing the money supply will, ceteris paribus, increase the price of goods or, in other words, result in price inflation. This is a misunderstanding of how the "trillion-dollar-coin" proposal is supposed to work. Neither the coin nor an equivalent amount of paper money are ever supposed to enter circulation. Rather, as Krugman points out, the coin is supposed to be deposited into the Treasury's reserve account at the Federal Reserve. The net change in money supply is zero, so the net effect on prices is zero.

    I think one legitimate concern, with respect to how such an action may effect monetary policy, is that the Fed would have to be willing to accept the deposit and this, in turn, may indicate a kind of complicity between the Fed and Treasury that undermines the Fed's credibility as an independent, non-political entity. The Fed would, in effect, be facilitating the fiscal policy of the legislative and executive branches. Of course, governments and central banks do coordinate policy occasionally, particularly during times of crisis. The coordination required in the trillion-dollar-coin scenario seems more blatantly political than, say, the Fed and the Treasury's coordination during the financial crisis, even if the purpose is ostensibly to stave off a potential crisis arising from a failure to raise the debt ceiling.

    I tend to agree with Kevin Drum that if this was done and challenged before the courts, they would determine that such an action was illegal. This is probably particularly true given the current ideological makeup of our federal judiciary. If a Republican administration attempted this action, I'd wager that the courts would probably be far more sympathetic.

    I think the most plausible option and, ultimately, the most effective one is to let the markets pressure the GOP into capitulation. The stock market and the bond markets are going to react far more negatively this time around than they did in 2011. Several days of large three-figure declines in the Dow or a spike in Treasury yields and the ensuing uproar from constituents and, more importantly, from the GOP's plutocratic benefactors may be enough to cow all but the most hopelessly delusional teabaggers into submission. If that doesn't work, then wait until people stop getting Social Security checks or defense contractors get IOU's instead of cash or doctors stop receiving Medicare reimbursements. The ensuing chaos may be what it takes to convince the American people that the debt ceiling is a fcking incredibly stupid idea that needs to be abolished.

    This, of course, assumes that the administration and congressional Democrats don't panic once the GOP shoots the hostage. Moreover, it assumes that the media will report what is going on accurately and assigns blame accurately. The media cannot blame whatever fallout occurs from not raising the debt ceiling on the size of the debt itself or the failure of bipartisan compromise. This will be the GOP's explanation for any market disturbance results. (In fact, they are already using this talking point preemptively: http://tpmdc.talkingpointsmemo.com/2013/01/gop-senators-not-raising-the-debt-limit-might-not-be-so-bad.php?ref=fpb). The blame must be placed entirely on the failure to raise the debt ceiling and, by implication, on the Republican Party. The administration and the Democratic party will have to get ahead of the GOP's propaganda machine, and do so aggressively, if they have any hope of controlling the message.

  • Keith M Ellis on January 04, 2013 7:47 PM:

    What you (Ryan) imply but don't explicitly explain, is that minting a trillion dollar coin could be and would be inflationary only insofar as it actually increases the supply of money in the actual economy. Not only does this mean that merely printing a trillion dollar bill or minting a trillion dollar coin couldn't be inflationary until it was put into circulation; it specifically means that only to the degree to which the funds represented by that trillion dollar coin are put into circulation could it be inflationary (and even then, under current conditions, it wouldn't be).

    This is because the Federal Reserve printing currency, or the Treasury minting a coin and then depositing it with the Fed, is only the first step in the process — what happens next is that the Fed buys debt with those funds. Only then are those funds added to the money supply. The Fed wouldn't buy a trillion dollars worth of debt, firstly; and it wouldn't do so using exclusively the funds represented by that trillion dollar coin. It would buy only as much debt as needed to continue business-as-usual, exactly as it would have done had the debt ceiling been increased and it had printed a corresponding amount of currency with which to do so. That is to say, what the Fed does with that trillion dollar coin will be exactly as inflationary as what it would have done with the authorized increase in the debt limit. Moore's argument is profoundly ignorant both in principle and in scope (were it correct in principle).

  • Josef K on January 04, 2013 7:54 PM:

    From Memekiller at 6:09 PM:

    If they think they can default and Obama does this run-around they can fight in the courts or call for impeachment for, then they're going to default. If not raising the debt ceiling destroys the full faith and credit of the US, then they'll cave.

    What makes you think (a) the GOP won't fight anything and everything the President will do in the Courts, and (b) driving the US into default isn't seen in their eyes as a perfectly acceptable outcome?

    These people aren't like you and I. They know there are repercussions to their actions. They just don't care what they are.

  • Ronald on January 04, 2013 8:27 PM:

    I say put Reagan on it. He's the one who first ran up the debt to ridiculous heights to begin with, it would be appropriate.
    Second, and this is important, let the Republicans take it to court.

    The court can't say to the executive branch "We're not going to let you print money anymore". They're not going to clean up Congress' mess. They passed this spending, and the President is paying for it, as he is obligated to do in just about any way possible.

    Besides, by the time it ran through the courts, the money will have already been distributed. Is the SCOTUS going to go act as 'debt collector' and get the money back?

    The Republican mouthpieces are incredulous because they can't find anything wrong with the idea- and because it totally and utterly disposes of the whole 'hostage' situation.

  • John on January 05, 2013 12:01 AM:

    According to the letter of the law this may be illegal, but generally it seems fine to me. The Federal Givernment has the right to mint coins. It doesn't matter if they mint one trillion one dollar coins or a single one trillion dollar coin. People feel uncomfortable with this because they don't understand how are money is created in the first place.

    I'd like to see this happen, but I don't think President Obama has the stomach for this sort of thing. I'd put Boehner's image on one side and McConnell's on the other.

    As long as we have millions unemployed and factory utilization well below 100% this would not be inflationary.

    One other point. Whether President Obama mints a single $1T coin or a thousand of them, only Congress can authorize him to spend that money. Lifting the debt ceiling in no way allows President Obama to spend money without the approval of Congress.

  • J on January 05, 2013 12:46 AM:

    I like "The Trillion Dollar Coin" idea.
    Then gitmo the entire GOP.

  • Marc on January 05, 2013 6:44 AM:

    Since Repubs who refuse to raise the debt limit seem to be in violation of the Constitution's Full Faith and Credit Clause, can they be removed from office for failing to uphold their sworn duty to uphold the Constitution?

  • jollyroger on January 05, 2013 7:39 AM:

    It is amazing how this idea has gone from fringe (in 2011) to almost mainstream (Representatives, like Nadler, are now endorsing it).

    For those who have trouble accepting the legality of a trillion dollar coin accruing profit to the Treasury (the term of art is "Seignorage"), a thought experiment:

    For a cost of 35 cents, the mint strikes one dollar coins (I think they now bear the image of Sacajawea, but it used to be Susan B. Anthony). Would you have a problem if a small army of temporary employees pushing wheelbarrows of dollar coins were to make the journey from the mint to the Fed, there to deposit the legal tender thus produced. Let's say, for instance, that Three Trillion Coins are struck and deposited, for a net to the government of roughly Two Trillion dollars.

    The interesting wrinkle, aside from the looming impact of the coin as a bludgeon to force acquiescence on the presidential debt limit authority now demanded, is that inasmuch as the "14th amendment" remedy is publicly negated, yet lines in the presidential sand are bruited, we may perhaps glean that Prez himself is quietly but deliberately holding this card in his vest (or up his sleeve, pick a metaphor.)

  • Steve LaBonne on January 05, 2013 8:00 AM:

    Nobody has come up with either a plausible legal objection or a plausible scenario in which anyone would have standing to challenge it in court. So I conclude that the objections are pure Village Seriousness, i.e. not serious at all. When fighting terrorism you have to use unconventional methods.

  • Bobby Goren on January 05, 2013 8:10 AM:

    RE: “Platinum Coin” option

    The real question is whose face will adorn our national shame. If Obama does have a platinum coin struck it should be called "The Gipper" and have St. Ronnie's face on it. He's the President who started us on this road to Wigan Pier. Besides, how could Republicans balk at putting the Great Accumulator (of debt) on anything?

  • Daryl McCullough on January 05, 2013 8:57 AM:

    Is it really true that just printing money (or minting coins, which is the same thing) is no more inflationary than borrowing? If that's the case, why in the world does the federal government ever borrow money?

  • david1234 on January 05, 2013 10:00 AM:

    I wonder if before resorting to creating this coin, the government could sell off the gold in Fort Knox in order to honor its debts. That would really put a scare into the Republicans.

  • Cranky Observer on January 05, 2013 1:57 PM:

    = = = Why petting "a white cat"? Wouldn't a black cat be more eeee-vil? = = =

    Ernest Stravo Blofeld.

    our Pveloc - 1st try

  • ajay on January 07, 2013 8:35 AM:

    I wonder if before resorting to creating this coin, the government could sell off the gold in Fort Knox in order to honor its debts.

    It probably wouldn't be enough. There's about 4,500 tonnes of gold there, at about $50 million a tonne - so $225 billion worth.