Ten Miles Square


January 10, 2013 12:03 PM How The Platinum Coin Option Helps the President’s Negotiating Position

By Ryan Cooper

I agree with Joe Weisenthal, the debate over the platinum coin has been the most interesting discussion in ages. Not only has it split the usual coalitions—with Josh Barro allied with Atrios against Kevin Drum, for example—it’s exposed in a stark way just how primitive the economic views of much of the national media are. On this segment, for example, neither of the hosts have a clear idea of what the coin proposal even is, let alone what it would do.

But Felix Salmon has a point—the coin proponents haven’t been clear on the operational use of the idea. I agree that it would be a bad idea to wave the coin around and taunt the Republicans with it, they’d only be emboldened. So what should the president’s strategy be? Here’s my outline:

1) He should absolutely refuse to even entertain the possibility of negotiations over raising the debt ceiling. Normalizing the idea of holding the economy hostage to extract unrelated policy concessions is a terrible development, and habit needs to be broken.

2) If we indeed hit the debt ceiling, he should use Steve Randy Waldman’s procedure for implementing the coin option:

The Treasury Secretary would announce that he is obliged by law to make certain payments, but that the debt ceiling prevents him from borrowing to meet those obligations. Although current institutional practice makes the Federal Reserve the nation’s primary issuer of currency, Congress in its foresight gave this power to the US Treasury as well. Following a review of the matter, the Secretary would tell us, Treasury lawyers have determined that once the capacity to make expenditures by conventional means has been exhausted, issuing currency will be the only way Treasury can reconcile its legal obligation simultaneously to make payments and respect the debt ceiling. Therefore, Treasury will reluctantly issue currency in large denominations (as it has in the past) in order to pay its bills. In practice, that would mean million-, not trillion-, dollar coins, which would be produced on an “as-needed” basis to meet the government’s expenses until borrowing authority has been restored. On the same day, the Federal Reserve would announce that it is aware of the exigencies facing the Treasury, and that, in order to fulfill its legal mandate to promote stable prices, it will “sterilize” any issue of currency by the Treasury, selling assets from its own balance sheet one-for-one. The Chairman of the Federal Reserve would hold a press conference and reassure the public that he foresees no difficulty whatsoever in preventing inflation, that the Federal Reserve has the capacity to “hoover up” nearly three trillion dollars of currency and reserves at will.

The president would do a live broadcast the day we hit the ceiling, explaining calmly that he is in a legal bind. Congress has passed a budget forcing the government to spend certain sums of money, but they have not given him the authority to borrow the money they themselves are forcing him to spend. He’d explain how on consultation with his lawyers he’s determined the platinum option is legal, and he’d cite chapter and verse. He’d explain that there is no danger of inflation and that things will be returned to normal the moment Congress raises the debt limit. He could propose that he give up his power to print in return for abolishing the debt ceiling. Most of all, he’d be the classic cool, reserved Obama, reassuring everyone that this is only a little hiccup, a simple technical workaround a goofy obstacle, that won’t affect anything important.

To be clear, I don’t think it will get this far. My best guess (and that’s all it is) is that the House GOP will probably just give up on this one.

But if the president can’t acknowledge the validity of the coin option, what is the point of working through the logistics and generally talking about it so much? The real danger of the coin option is the ignorance of the national media. As we’ve been finding out, many members of the press have primitive, pre-Enlightenment beliefs about money. They think the government is like a household, and don’t consider the implications of fiat currency. Running the government on platinum seigniorage, even temporarily, would sound deeply strange, and you can bet Republicans would be howling bloody murder. The coverage would be key. If only we had panicked reports from the likes of Judson Berger blaming the president entirely for the situation, gabbling incoherently about hyperinflation and default, then we’d likely see a big backlash and possibly impeachment.

Therefore, hashing out the debate now is critical, to give the president the confidence he needs that the platinum option is a viable one and he won’t be crucified for exercising it, so he can absolutely refuse to negotiate over the debt ceiling. I’d say Team Coin has done quite well in this task so far.

PS: A different debt ceiling runaround is coming up today: an option to issue scrip instead of money, which I consider about equally valid to the coin option. Everything in this post would hold true for that option as well, with only a few minor changes in the details of implementation.

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


  • Peter C on January 10, 2013 4:40 PM:

    I don't like the idea of scrip; an IOU feels like additional 'debt' to me. With scrip (even if sold as 'moral obligation' notes), it will be easier for Republicans to say that the total scrip amount is all additional new debt which puts us over the debt ceiling. The coin is money - legal tender for all debts public or private. It need not circulate; it can sit in the Fed's vault. When the debt ceiling gets raised, the coin can be retired and destroyed in lieu of new bond sales.

  • Keith M Ellis on January 10, 2013 5:34 PM:

    I agree completely. This has been my criticism of Krugman and others — that they have seemed to be urging the White House to explicitly state that they are willing to use the coin option and, perhaps, to do so at the earliest opportunity. That view, as best I can understand it, is that this would be the best outcome as it would eliminate the debt ceiling as a bargaining chip.

    That's a very simple-minded and naive expectation.

    The public and the media, indeed, have very naive and uninformed views about these issues and the simple fact that the left is divided on the coin in this respect (many thinking that it is absurd) demonstrates that absent any "last second avoiding the apocalypse" context, they will see it as a very bad thing in numerous respects. Not just bad economically, but bad in terms of executive usurpation of Congressional authority.

    But if it's done as you describe, when it's clear that it's a justifiable way to avoid calamity — that could be sold to the public.

    Just putting it explicitly on the table, or worse, actually doing it early, would immediately put intense negative political pressure on the President, moving the focus away from the GOP. Worse, as you say, it would embolden the GOP (if the possibility is explicitly allowed) because they'd know that they aren't actually using the possibility of default as a negotiating threat and the practical result would be the President taking the heat for such an unconventional action. Actually doing it early would be like a second Christmas for the GOP, undermining all arguments that they're extremists, getting them out of the bind that they are, in fact, threatening to force the US into default, and placing them in a better political position for bargaining regarding the sequester.

    So the admin explicitly allowing the possibility or actually doing it early would, in fact, result in pretty much exactly the opposite political and budgetary goals that these proponents actually want.

    However, as you say and Krugman finally says today, being "cagey" about it, letting others lay the groundwork, is the best strategy. This avoids what I just described but does prepare the PR soil for the idea that it's defensible and, as opposed to saying so explicitly, strengthens the White House bargaining position because the GOP doesn't know that the WH will actually do this (so they still have to fear that they are leading the US into default and therefore they are likely to not risk it at the last minute) while also their suspicion that the WH might do this weakens their implicit threat of forcing the US into default.

    Ironically, the WH allowing the possibility explicitly works exactly the opposite.

    Which is pretty interesting, by the way, from a theoretical game-theory/negotiating standpoint.

  • GregL on January 10, 2013 7:18 PM:

    I agree with your time line except for one thing. I think that default is allowed to happen. I think that the GOP is shown a default panic and is given hours to pass the clean debt ceiling bill. If they don't then Obama executes the coin option and saves the world.

    The bad guys lose, the good guys win and it will never, never happen again.

  • paul on January 10, 2013 8:01 PM:

    I'm beginning to lean toward impoundment, or at least public preparations for it. It's clearly unlawful, but that's the point. Anyone affected by it (say a government contractor) should have standing to sue, and should be able to get a court of competent jurisdiction to say that yes, the supreme court has already ruled that the president must spend money when congress has ordered it to be spent. At that point, you have either the president unopposed saying that the courts have ordered him to keep the dollars flowing, or GOP funded lawyers opposing the president by saying that he does indeed have the authority to pick and choose which congressionally-ordered spending to fulfill. Win-win.

  • John on January 10, 2013 10:00 PM:

    I don't understand all the handwringing about using Pt coins. This is clearly legal and clearly within the bounds of normal governmental management of a fiat currency. President Obama could deposit a $1T coin or ten of them with the Fed. It makes no difference as he can't spend money Congress doesn't authorize. It increases the money supply but that happens anyway when the Fed buys Treasuries instead of the public. I don't recommend this on a regular basis but this is an emergency.

    I am amused at the idea that this will somehow enrage the right. Do you mean that till now we've seen them on their best behavior? This will not excuse the right, if anything it will underline how nuts they are. President Obama can call a press conference and have Geithner explain the legality and nuts and bolts of the deal the Pesident Obama can point to the Republicans and say that their extreme behavior is forcing him to do this. The Fox News crowd won't buy it but the rest of the world will understand. The right will be deprived of a way to make trouble and we'll move on.

    We should not go anywhere near default. The long term consequences (self inflicted at that) are too terrible to trifle with.

  • square1 on January 11, 2013 8:31 AM:

    In certain quarters there is a resistance to educating the American public that there is an alternative to taxing or borrowing: printing money. Of course, taken to an extreme, this could lead to runaway inflation. But, in moderation, there is no reason not to view printing (or coining) money as a superior option to debt-financing government spending: we aren't flushing billions of taxpayers' dollars down the drain in interest payments.

    It is amazing to see even proponents of the platinum coin option refer to it as a "temporary" or "emergency" measure as if we are going to see Weimar-esque inflation in the U.S. if it continues for more than a week.

  • boatboy_srq on January 11, 2013 9:19 AM:

    @Peter C: While I agree that scrip=debt, I for one love the idea - especially if, as has been suggested, it is issued to defense contractors and other GOTea-supporting public sector contractors. Part of the problem is that none of the GOTea's pet expenditures face any pain whatsoever in the current negotiations (the only pain would have come from the sequestration that has been postponed for now), and the GOTea thus face no pressure from any quarter not to hold out for what they want. If scrip can cause some of their larger, less rabid, more financially significant backers to push them to drop the insanity and get to work, then it's nothing but a good thing.