The Platinum Coin Boondoggle
Could a coin like this solve the looming debt ceiling crisis?
With another debt ceiling crisis approaching and the two sides in Washington seemingly further apart than they were the last time we dealt with this issue in August 2011, discussion is already beginning about ways that the President could possibly get around any Congressional intransigence on the issue. One suggestion, which we heard back during the summer 2011 debacle involves the argument that the President would be authorized by Section 4 of the 14th Amendment, which states that the public debt of the United States shall not be questioned, to issue new debt. As I noted at the time this argument was made, there were serious Constitutional and practical problems with this proposal. Constitutionally, it seems clear that all Section 4 really means, at most, is that the United States could not default on the debt and that the President would be authorized to take action to prevent that, it does not appear to be authorization to issue new debt as it’s proponents complain. Practically, if new debt was issued under Section 4, it’s quite likely that such debt would be considered legally questionable at best, which would likely mean that borrowers would demand higher interest rates to compensate for the risk that the bonds they purchased could be declared invalid. In the end, the White House rejected the 14th Amendment option and appears unlikely to pick up that argument this time around.
Instead of old Constitutional arguments, though, some people are making the argument that the Administration could mint it’s way out of a debt ceiling crisis with just a little bit of platinum:
What if the threat of a voluntary default by the United States could be erased by simply turning one tiny scrap of platinum into a coin?
That’s right. No debt ceiling problem. No bickering in Congress. No market jitters. The only thing needed is for the Treasury Department to mint a platinum coin with a face value of $1 trillion.
Of course, this is not going to happen. Creating money out of thin air is hardly a solution. It could lead to even more concerns from those worried about inflation. Critics of the Federal Reserve’s monetary easing programs would likely be apoplectic if the Treasury Department trumped Ben Bernanke’s “helicopter drop” by minting a trillion more new dollars.
The influential New York Times columnist Paul Krugman has already dubbed the talk a“gimmick.” But here is why some people think this bizarre strategy could work.
(…)
If Congress does not act to raise the debt ceiling, the U.S. will default on its debts. Not good. But this is where the platinum coin comes in. Normally, the Federal Reserve is charged with issuing currency. But U.S. law, specifically 31 USC § 5112, also grants Treasury permission to “mint and issue platinum bullion coins and proof platinum coins.”
This section of law was meant to allow for the printing of commemorative coins and the like. But the Treasury Secretary has the authority to mint these coins in any denomination he or she sees fit.
With a $1 trillion coin in hand, Treasury could deposit the money into Fed accounts, and pay its debts in that manner, instead of relying on bond issuance.
And none of this requires Congressional consent. Talk about an elegant solution.
The idea has gained some enthusiasm from some denizens on Twitter as well as Congressman Jerrold Nadler. Additionally, as of yesterday, there’s a petition on the White House’s web site calling for the minting of a trillion dollar coin for the purposes described above.
If you look at the statute, the argument that the proponents put forward does seem to be somewhat persuasive from a legal point of view. There appear to be very few limitations on the Treasury Department’s authority to mint platinum coins, for one thing. When you dig down deeper, though, it seems clear that the argument, while creative, doesn’t really measure up when it comes to legal sufficiency:
No particular restrictions were placed on the design or issuance of platinum coins, but this paragraph was plainly intended to apply to bullion and commemorative issues for coin collectors. That’s all.
There is, apparently, a widespread belief that courts will uphold a literal, hypertechnical reading of legislative language regardless of its obvious intent, but I’m quite certain this isn’t true. Courts are expected to rule based on the most sensible interpretation of a law, not its most tortured possible construction. I don’t think there’s even a remote chance that any court in the country would uphold a Treasury reading of this law that used it as a pretense for minting a $1 trillion coin.
I tend to agree. While Court’s are primarily guided by the language of a statute, they also pay close attention to what Congress intended when they passed the law they are charged with reviewing. In this particular case, it is clear that the law in question was intended to authorized the Treasury to create commemerative coins made of platinum and sell them to the general collectors market, not that these coins would be circulated among the general public or used to pay the legal obligations of the United States in the manner that those advocating this strategy have suggested. Former Delaware Congressman Mike Castle, who cosponsored the bill in question agrees:
When I told Castle — who, following a defeat by tea party activist Christine O’Donnell in the 2010 Republican Senate primary, became a partner in the lobbying division of DLA Piper — about the platinum coin solution for the debt ceiling, he was baffled. “That was never the intent of anything that I drafted or that anyone who worked with me drafted…It seems to me that whatever’s being proposed here is a stretch beyond anything we were trying to do,” he said, audibly astonished.
A day later, he called back. “I want to give it my seal of approval,” he said, adding quickly, “Just kidding.” The plan, he said, is an irresponsible run-around that would undermine the federal government’s credibility. The plan is “so far-fetched and so black helicopter-ish a type of methodology of trying to resolve something like this that I think the public would totally scoff at it…It would be an artificial way of trying to create money and I think everybody will see that.” It would be better, Castle argues, for the government to actually raise the debt ceiling using normal measures while cutting the deficit.
So the platinum coin plan plainly goes against the legislative intent of the Commemorative Coin Authorization and Reform Act of 1995, as described by its author.
What this all suggests, at the very least, is that if the President were to take this action, it’s legality would be questionable at best. Just as with the 14th Amendment solution, this would create a high degree of legal uncertainty regarding the finances of the Federal Government to such an extent that it would likely offset any positive benefits that the proponents of this idea seem to think we’d see .
Beyond the legal problems, there’s another serious problem with the idea of simply creation a trillion, or more, dollars out of thin air:
If government decides it magically has $2 trillion worth of coins (that just happen to be made ofplatinum) this would immediately create $2 trillion worth of inflation. The coins would be deposited at the Fed, into the Treasury Department’s account to spend. Money has been created out of thin air here, backed by nothing but arbitrarily denominated coins. The government buys goods and services with this money, and pays federal workers with it (as usual). But in this hypothetical scenario the government is not borrowing any money any more (because it has the money to spend), so the investors who would have loaned that $2 trillion to the government by buying Treasury bonds will have to use that money elsewhere in the economy. This means money has been printed and spent, while the $2 trillion that would have been borrowed and used in its place continues to exist. Simply put, that is going to be inflationary.
Perhaps Dr. Gagnon (who has more than two decades at the Federal Reserve and Treasury Department) does not fear the inflation that would result from $2 trillion more being printed and sent into circulation. But he would be sorely mistaken if so. Where quantitative easing has injected hundreds of billions into bank balance sheets (where it has largely remained, thus having only indirect inflationary impact by driving up stock and commodities prices), this coin plan would drop all that new money in circulation right into Main St., driving up prices for everyone.
Some advocates of the Platinum Coin option have argued that the move would not be inflationary because the coin would be deposited with the Federal Reserve rather than circulated among the general populace. However, as noted above, that ignores the fact that the coin(s) would serve as the basis for expanding the credit of the United States or the purpose of paying ongoing obligations. All of that money would most necessarily be infused into the general economy while, at the same time, the funds that would have been used to buy the T-Bills that would have been issued to pay those bills in the ordinary course of the Federal Government’s business would end up being utilized in other manners. That’s a classic increase in the supply of money without anything to back it’s value, and that, my friends, is what inflation actually is.
National Journal’s Matthew Cooper makes a final point regarding the political danger of a move like this:
As bad as the House behavior has been, using a small legal provision meant to please numismatists to leverage the nation’s debts seems, um, risky. The only analogy I can think of is the Court-packing mess of the 1930s when President Roosevelt, faced with a cranky Supreme Court that overturned his social-welfare programs and those in the states, tried to enlarge the size of the Court to fill it with more sympathetic appointees. After an outcry, the president backed down. But FDR at least tried to make the change by proposing a statute and forcing a Senate debate. (The bill never cleared the chamber.)
Minting the coins would seem even more imperious. After all, the Supreme Court in the 1930s was knocking down state minimum-wage laws and other expressions of the popular will. FDR had some momentum behind him. But President Obama would look despotic if he embraced this tactic. (Imagine all the pictures of King Obama on a coin.)
Is it a useful negotiating tool, at least? Perhaps, but unlikely. Yes, the Supreme Court did seem to respond to court packing, going on to uphold a minimum-wage law similar to one it previously struck down. But the House GOP would likely see such a move as an idle threat, and merely brandishing it might make Obama look more delusional than strong.
In the end, the President still holds most of the cards in this confrontation with Congress. There’s no need for him to engage in this dubious, dangerous, and foolhardy stunt.
Is it better to issue the $1T coin, or default on our obligations?
Looks like another “free stuff” scheme cooked up by OBOWMA to give goodies away to his cronies. First its shady land deals with Tony Rezko (that’s right!! true patriots do not forget!!) and then its OBAMA PHONES to all the ACORN VOTERS to beat out poor Willard Mittens in the election, and next thing you know its platinum coins to get pass the courageous and brave GOP House and their prinicipled and dignified objection to raising the debt ceiling.
I bet Obama only mints these coins so he can make off with them – JUST LIKE the Clintons did with all the nice White House furniture and drapery. Yeah, that’s just how Dems operate.
Well, jokes on you, Libs. The American people will never fall for it.
GOD BLESS USA AND NRA
Except that money is created out of thin air every single day at any bank that gives loans. Why is this idea so remarkable?
Only on the Internet and in other left-wing circles could this utterly preposterous idea gain even the slightest modicum of traction.
Von Mises and other classical liberal economists quite literally are spinning in their graves. Sigh.
It’s high time for a mandatory national course on (1) public money, credit and inflation, (2) the history of hyperinflationary environments and their disastrous effects, (3) the Federal Reserve Act, and (4) the many differences between and amongst the Federal Reserve, the various member banks of which the Fed acts as representative, the Treasury Dept., and their respective but interrelated roles and responsibilities.
What’s really scary is the public at large gets dumber by the day.
@cd6:
Nice. You actually got down votes.
@cd6: Wow, can’t believe that over-the-top post fooled anybody, but it apparently did. Congrats. Geez, he almost sounds like that one guy who used to troll around here (can’t remember his name right now …)
And then there is the Second Amendment.
The president is going to try and use popular opinion as his leverage. A WH reporter said he’s hitting the road right after Inauguration. The Gop haven’t convinced me they’re trustworthy to “reform” entitlements. They immediately try and destroy any social spending as soon as it’s passed. When you want to make “severe cuts”, and that’s what they’re saying on TV you’re in a lose-lose situation. Entitlement programs and Defense spending are the only things that haven’t been cut. They won’t tell the public the truth about what they want to cut b/c ,of course, they want to blame Dems for the cuts to the SocSec and Medicare programs in the next election season. They’re demanding a list of cuts from the president. Not going to happen.
@Franklin:
His (her?) name was Triumph…I think.
S/he was the best.
Agreed, I have argued for years that technically the 14th Amendment prohibits age-of-majority laws, such as restricting the ability to purchase alcohol or drive a car to citizens of a certain age, for example. I like to think, however, that no reasonable court would uphold selling Jack Daniels to 3 year olds – or minting $1 Trillion coins to pay the way.
@Tsar Nicholas:
Literally spinning in their graves? Now that would be something to see!!!
@michael reynolds:
I can’t tell if people are downvoting my previous post because (a) they can’t handle my knowledge bombs infiltrating their MSNBC bubble or (b) they’re godless communists and can’t resist anything RED, including the little thumbs down button.
Who am I kidding.
All you liberal moonbats, its probably both.
So confused… I honestly don’t know the right votes to give to express my enjoyment of @cd6‘s comments.
@mattb:
That’s called Poe’s law.
I think what Obama should do is start cutting down govn’t spending in order to stay under the debt level. First we’ll cut Medicare payments, then we’ll cut Social Security payments….
Show everyone exactly what it will mean if we allow the Republicans to get the “balanced budget” thingie they want.
@grumpy realist: Hey grumpy, how about we cut some welfare. Welfare is now larger than Social Security and the Defense budget. Make some people work for their dinner.
@Jack:
God… The ignorance… it doesn’t wash off. Welfare is NOT larger than Social Security OR the defense budget.
US 2012 Budget:
Welfare: 12%
Military: 24%
US 2013 Budget:
Welfare: 11%
Defense: 24%
Source: http://www.usfederalbudget.us/federal_budget_detail_fy13bs12013n
@mattb: Matt, yes. Welfare alone. I’m sorry I grouped everything mentally under welfare. Food stamps, welfare, section 8, medicaid and the like have reached over 1 Trillion in 2011.
The government spent approximately $1.03 trillion on 83 means-tested federal welfare programs in fiscal year 2011 alone — a price tag that makes welfare that year the government’s largest expenditure, according to new data released.
http://www.scribd.com/doc/110366590/Spending-for-Federal-Benefits-and-Services-for-People-With-Low-Income-FY08-FY11
Booyah!
@cd6: I downvoted because you failed to mention that we’re about to become a one-party state, and you failed to misuse the word irony in ways that proved you have no idea what irony actually means. Also, too: If Gex Y was a stock you wouldn’t short sell it? How can you call yourself an intelligent commenter? How can I take you seriously?
@Jack: That’s nothing. If I call everything the government spends money on “welfare,” then WE’RE SPENDING OUR ENTIRE BUDGET ON WELFARE!!!!
Now you can really get upset.
You have to admit, Doug — that action would make for an awesome Ocean’s Eleven premise.
@wr: You’re just being argumentative to be a douche. The facts are there and libs don’t like facts they like emotions and you are speaking from emotion.
Apparently, there are no mirrors in your trailer…
BS. @Jack:
No, it´s not emotion. The two biggest welfare expenses of the US Federal government are Medicare and Social Security, that accounts for something like 38% of the Federal Budget. Foodstamps, the biggest welfare expense, is only 10% of the Social Security expense, alone.
@wr:
cd6? I literally have never heard of him. But then that’s as clear as a sun-rises-in east kind of thing.
I’m pretty much in agreement with most of this article:
http://www.businessinsider.com/the-trillion-dollar-coin-and-the-republican-debt-ceiling-fight-2013-1
The Trillion Dollar coin is a ridiculous idea .. but then so is threatening to ruin the world economy as a means to achieving a partisan objective.
Well if they mint it… .They oughta put Biden’s face on it.
Woohoo, I made it up to 21 thumbs downs & got a red box around my comment
You guys are more upset than Obama when the teleprompter store is sold out
I drink in your tears
@rodney dill:
Nah, it should be Reagan – not only the first President to hit a trillion dollars national debt, but who actually doubled it.
@Jack:
I agree. Let’s start by cutting off the states of New Mexico, Mississippi, Alaska, Louisiana, West Virginia, North Dakota, Alabama, South Dakota, Virginia, Kentucky,….
I would call those welfare states a good start. I am sure we can find a way to work in Missouri, Oklahoma, Arkansas, and South Carolina too.
The platinum con idea is nonsense but so is the debt ceiling concept. The simplest solution: have the SCOTUS declare the debt ceiling unconstitutional . The problem disappears.
@Stonetools:
It would be replaced by another problem.
Look at the history of the debt ceiling, why we have it at all. It was instituted nearly 100 years ago to make it easier to finance U. S. participation in World War I. The current debt ceiling framework was established in the late 1930s. Prior to that, Congress had to authorize each debt issuance individually.
Can you imagine that today? Instead of a debt ceiling fight every few months, we could have one every few hours.
I think this article ignores the language of the statute and puts far too much importance on “congressional intent”, that will o’ the wisp that can be forged (as Justice Stevens pinned out John Kyl and two of his fellow liars for phonying up legislative history in a decision I forgot).
Now, I know Justice Scalia is a plain-language-of-the-statute man. As Nino would say, if anyone knows how to write laws it’s the Congress. We certainly do not need an activist supreme court overturning the will of Congress as expressed in the clear text of the law. Obama can take that to the bank.
If anyone cared about “congressional intent” then the 2nd amendment would only apply in absence of a standing army.
@Jack:
Jack, your “facts” are nonsense.
First off, the CRS report you link to clearly shows ~$750B in FEDERAL spending…to get to the over $1T you have to include what the states match. So, if you want to espouse bullshit like “making welfare the #1 expenditure of the government” or whatever you said, you would have to include at least all the state government budgets as well to make that calculation. This gets you a little closer to the truth:
http://www.usgovernmentspending.com/year_spending_2011USbf_13bs1n#usgs302
In related coin news, the Canadians are getting rid of their penny.
They are like … sane Americans or something.
Look, if ever got to the point where platinum coins were actually produced and/or the debt ceiling was ignored, citing the 14th amendment, it would probably be nearly (if not as) bad economically as actually defaulting.
The “ideal” solution is probably something close to McConnell’s plan from last year (but on a permanent basis), where the President can (somewhat automatically) raise the debt ceiling, but has to endure some sort of political “hit” for doing so.
The problem is that to get to that solution, the Republicans have to believe that the President and the Democrats are willing to talk publicly about (and maybe even act on) ideas as crazy as their own when it comes to the debt ceiling. As long as House Republicans believe that the President will always ultimately behave like the grownup in the room (and cave to their demands), they’ve got a hostage they’d be silly to give up when it comes to the debt ceiling.
Todd, why should the president have to take a political hit for allowing the government to pay for the things Congress has decided the government should pay for? Sure, he takes some responsibility for the expenditures since he signs the bill, but still…
“Uhm, Mr. President, we didn’t balance the budget, so we need to borrow more money to pay for what we want. Also, you need to give us something in return for the privilege of allowing us to pay for the things we want.”
Seems reasonable enough, no?
@garretc: notice I put the word “hit” in quotes.
When it comes to economics, I tend to lean towards the MMT/MMR philosophies (which is where the platinum coin idea originated), but I’m also very much a pragmatic realist. I often have a debate with one of my more dogmatic MMT believing friends about the difference between what’s economically necessary, and what’s politically necessary.
Economically, the artificial debt ceiling it more damaging than helpful, and probably shouldn’t exist.
But politically, somebody has to take “responsibility” for deficit spending (because a significant segment of our population are convinced that it’s always “bad”) … and the somebody that makes the most sense is the President.
If they mint the platinum coin, it should have Boehner’s face on it. Just rub his nose in it. Each $1T coin minted could have a different face on it — they are collectible after all — so the contributions of every Republican who caused this fiasco would be commemorated over time.
Eh, not necessarily. The Fed could sterilize it by selling $1T of treasuries and pull an equal amount out of the economy.
As silly as this coin is, it isn’t nearly as stupid as forcing a default. Anything that prevents that is OK with me.
@Neil Hudelson: Triumph was better.
This iis not true. All that would happen is that the coin would be deposited at the government’s reserve account at the Fed. There would be no net increase in the money supply beyond what Congress had already authorized to be spent anyway, therefore no increase in aggregate demand and certainly no monetary inflation.
Even mainstream economists are finally acknowledging the Quantity Theory of Money fails the empirical test.
@Gustopher: What’s the difference?
Inflation is not defined as an increase in the supply of money. Inflation is defined as a rise in prices over a period of time.
As you can see below, there is little-to-no correlation between monetary aggregates and inflation:
http://static.seekingalpha.com/uploads/2010/3/3/saupload_cpi_inflation_g1_32.jpg
Canada is what the United States would be without the South.
I read somewhere that any new coin has to have the likeness of someone who is deceased and that person has to be chosen by Congress. So they could still put a halt to the coin idea by holding up that legislation.