(Platinum) Pennies From Heaven (UPDATED)
Professor Jack Balkin of Yale Law School is one of the most innovative constitutional law scholars in active work today. And his latest input to the debt ceiling debate is a doozy. Balkin first nails the real problem that is at issue here:
We are having a debt-ceiling crisis because Congress has given the president contradictory commands; it has ordered the president to spend money, and it has forbidden him to borrow enough money to obey its orders.
Exactly right. Past Congresses already commanded massive deficit spending in the form of entitlement programs that are self-renewing and self-expanding as well as yearly discretionary spending bills that pile on top. And now a new Congress is trying to pull the plug by simply cutting up the nation’s credit card.
But the President may not be as powerless to react in such a situation as many in Congress assume. In fact, Congress has already given the Treasury a little-known escape hatch that sounds as bizarre as it is ingenious:
Sovereign governments such as the United States can print new money. However, there’s a statutory limit to the amount of paper currency that can be in circulation at any one time.
Ironically, there’s no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.
An ironic side-benefit: This option — dramatic inflation-by-coinage — might make the “hard money” activists in the Ron Paul campaign experience sudden cranial explosions. We could sell tickets. More money for the Treasury.
Balkin also suggests selling of government assets to the Federal Reserve for $2 trillion for later buyback at $1 as well as a previously-discussed option to interpret Congress’ promises to spend as “debts” that cannot be “questioned” under the 14th Amendment. Moreover, Balkin argues that the President can simply choose which of Congress’ contradictory commands to obey in a situation where it is impossible for him to obey both at the same time, essentially responding to Congress’ cutting up the credit card by simply ordering up a new card:
Here the president would argue that existing appropriations plus the debt ceiling create an unconstitutional combination of commands. Therefore he chooses to obey the appropriations bill — which was passed later in time anyway — and ignores the debt ceiling. He orders the secretary of the Treasury to issue new debt sufficient to pay the government’s bills as they come due.
Balkin concedes that there may be unforeseen problems, of course:
The government has not discussed either option publicly. There are three reasons for this. First, there may be other legal obstacles to using these options that we don’t know about. Second, because these devices could be used over and over again, they might scare investors and be politically unacceptable. Third, the president’s political strategy has been to obtain a congressional deal lowering the deficit, and these solutions would take all the pressure off Congress.
An angry Congress may respond by impeaching the president. However, if the president’s actions end the government shutdown, stabilize the markets and prevent an economic catastrophe, this reduces the chances that he will be impeached by the House. (After all, he saved the country.) Perhaps more important, the chances that he will be convicted by a two-thirds vote of the Senate, which has a Democratic majority, are virtually zero.
Of course, Balkin is right that using these devices could have serious political repercussions and could also send a signal to global financial markets that the United States has devolved into new depths of financial shenanigans with unpredictable consequences. But the availability of these options probably also means that predictions of an imminent financial apocalypse are probably overblown and may in fact be theater concocted by a bipartisan coalition of political leaders who — Democrats and Republicans alike — benefit from using this issue to fire up their base and increase hatred towards the other side with little real risk to themselves or the country.
UPDATE: The statute here appears to be 31 U.S.C. § 5112(k), which reads:
The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.
Ironically, a quick look at the legislative history indicates that paragraph (k) was modified to specify platinum coins could be so issued in 2000, by a Republican Congress.
It also appears that it would be difficult for anyone to try to use the courts to block such a scheme, as it would be difficult for anyone to have standing to challenge the President’s decision. See Copper & Brass Fabricators Council, Inc. v. Dept. of Treasury, 524 F.Supp. 945 (D.C.D.C. 1981), affirmed 679 F.2d 951, (D.C. Cir). If they did pass this test, however, the key problem for the government would lie in proving that the grant of discretion over “denominations” in paragraph (k) was not constrained by the limitations on denominations of coinage in paragraph (a) of the same statute.