Platinum …or Blink?

Daryl Cagle, CagleCartoons.com

If it’s going to come down to a trillion-dollar platinum coin, we might as well understand what it is and isn’t. I see it as that moment in the movies when the priest, dealing with the devil incarnate, holds up his little cross. The devil then evaporates or melts or something else that costs about a trillion in special effects and makes little boys incredibly excited.

The coin isn’t actually through-and-through platinum, weighing a ton, carried by federal employees in a shrouded van (accompanied by noisy police cars) to the Federal Reserve and credited to our account there. Instead it’s a Constitutional special effect in which the president accepts the Constitutional opportunity to mint a “commemorative” coin worth a conceptual trillion dollars as a bailout for a group of legislators who refuse to take up their normal responsibilities. It’s a fake toad in a real garden.

In case you’re wondering, no, this wouldn’t be an inflationary exercise in printing money. Aside from the fact that .Paul Krugman, NYT

It’s fully within the president’s powers to do this. If we’re talking about right now, it’s also a reproof — in the guise of some theatre of the absurd — aimed at a group in Congress that didn’t do its job. As Krugman points out, a stark reality lies behind all this craziness.

Under the Constitution, fiscal decisions rest with Congress, which passes laws specifying tax rates and establishing spending programs. If the revenue brought in by those legally established tax rates falls short of the costs of those legally established programs, the Treasury Department normally borrows the difference.

Lately, revenue has fallen far short of spending, mainly because of the depressed state of the economy. If you don’t like this, there’s a simple remedy: demand that Congress raise taxes or cut back on spending. And if you’re frustrated by Congress’s failure to act, well, democracy means that you can’t always get what you want. … Paul Krugman, NYT

In this case, because Congressional Republicans haven’t… Oh, well. You know.

There are other ways of dealing with the problem of a fake cliff in a real America.

… The platinum coin may not be the only option. Maybe the president can simply declare that as he understands the Constitution, his duty to carry out Congressional mandates on taxes and spending takes priority over the debt ceiling. Or he might be able to finance government operations by issuing coupons that look like debt and act like debt but that, he insists, aren’t debt and, therefore, don’t count against the ceiling.
Or, best of all, there might be enough sane Republicans that the party will blink and stop making destructive threats.

Unless this last possibility materializes, however, it’s the president’s duty to do whatever it takes, no matter how offbeat or silly it may sound, to defuse this hostage situation. Mint that coin! …Paul Krugman, NYT

Cross-posted from Prairie Weather

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Author: PRAIRIE WEATHER

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13 Comments

  1. Fiction is stranger than truth, but in this case, we may need it to deal with reality!

  2. They were wondering what image to place on the coin, should it really be minted. I suggest President Reagan. His administration was in power when the national debt exceeded a trillion dollars the very first time. That administration was still in power when the national debt almost trippled to three trillion dollars, something no other administraton has accomplished – so far – even with two wars (on the books, finally) and a third impatiently waiting in the wings.

  3. This entire mess is entering the realm of the surreal.

  4. I thought we needed 16 Trillion. At any rate, he would then have to mint billion and million coins to make change :)

  5. I’m not sure about this whole theme of legislators who refuse to do their duty…several points.

    1. I’m not sure it’s anyone’s duty to raise the debt ceiling at all. Let me be clear that failure to raise it would be a monumentally stupid policy decision, perhaps one of the stupidest of all time, but it’s not at all clear to me that legislators have a duty to behave in a way that I consider to be “smart.” It is undoubtedly clear that failing to raise the ceiling does not violate their oaths of office (at least it’s clear to me) but the notion of a duty seems overblown.

    2. But let’s assume there is a duty to raise the ceiling. There are relatively few Republicans who are flat refusing to do so. Instead, most are demanding unspecified spending restraint as the price of raising the ceiling. The notion that there are not 50 Rs in the House that would pass a debt ceiling accompanied by large spending cuts is farcical. Such a faction clearly exists; indeed, this is the position of the leadership at the moment.

    No instead, the duty to raise the ceiling, in the mind of Dr K (as near as I can make it out) is the duty to raise the ceiling without precondition. It’s quite hard to envision this as a duty. Indeed the entire framing of this as a duty is nothing more than a positioning exercise.

    As to the inflationary impact of the coin, I suspect Dr K is being literal to avoid the point. Does the coin itself add to the money supply as it is traditionally conceived, not as I understand it. However, the coin would signal to creditors that the US has no particular intention of behaving in a responsible way. It might still be the option the President prefers, but it is most certainly not his only option.

    If the President chose, he could easily agree to the spending cuts the Rs want (assuming they would ever define them) but he doesn’t want spending cuts (keeping in mind that the cuts folks are claiming “have happened” are the BCA cuts that were just put off in the most recent budget deal). Rather what he wants is to continue spending at or near its current levels. That’s a fine preference but there is no duty to agree with it.

  6. Whether there is a duty to raise the debt ceiling independent of other considerations, like budget cuts, is not an open and shut question. Members of Congress are sworn to uphold the Constitution. There is a school of constitutional interpretation that would find a duty to pay the debt in the Constitution at Amendment XIV, Section 4, which reads, in relevant part:

    “The validity of the public debt of the United States, authorized by law…shall not be questioned.”

    Some have gone so far as to argue that the debt ceiling may itself be unconstitutional, but one need not go that far. It is relatively easy to construct a legal argument that the act of intentionally placing the country into default on its debt violates the Fourteenth Amendment in contravention of the Congressional oath of office.

    This is not to say that anyone should or should not subscribe to that interpretation. My point is that such a constitutional interpretation is a valid constitutional perspective upon which the Supreme Court has never ruled. That interpretation, in fact, serves as the basis for those who argue that the President can simply ignore Congressional inaction on the debt ceiling and declare the constitutional necessity of paying the debt with or without a debt ceiling increase.

  7. I think that you are being a bit naive CH, if you believe that the Rs actually want spending cuts. They had plenty of opportunity to enact cuts when GWB was president and they controlled (for awhile) both houses of congress. They instead chose to expand the entitlement spending by enacting Medicare part D in which they refused to allow the government to us its market power to bargain down drug prices making the bill far more expensive than it had to be.

    In the current circumstances it seems pretty clear that what the Rs actually want is for Obama to propose unpopular spending cuts that they can then oppose and through that opposition obtain political leverage.

  8. Well, namesake, I partially agree in that I’m not sure the Rs really want spending cuts. That said, I believe enough of them would vote for a debt ceiling increase that included spending cuts that such a piece of legislation would pass. As to increasing spending under Bush 43 and Med Part D, I entirely agree. That said, the ACA made Med Part D more expensive rather than less and added a new expense of $150billion plus per year which, parenthetically, is about 3x the annual cost of Medicare Part D.

    As to your last paragraph, it’s pretty clear to me that both sides want the other side to propose unpopular spending cuts…that’s why each talks about spending cuts in only the most generic of language.

  9. Steve, you mean oppose small cuts,however unpopular and keep asking for more? Sure, that is their game.
    Of course they want spending cuts. If only because it will upset Obama’s constituency. Then they can say ” see….Obama sold you down the river”.
    The Reps responsible for that part D pushed it through because they were in the lobbyists pockets and stood to gain alot, like big jobs and lots of money. ( See Wiki..criticisms section of part D)

  10. Sheknows,

    Part D was horrible but it wasn’t as horrible as the Dem alternative at the time which would have cost even more. Look, for me this is a very simple conversation, probably more moralistic than anything else.

    People who do not need money or services should not be given them, pure and simple. Non-means tested SS and Medicare (A, B, and D) are bad programs because they give a lot of money to people who have no need. That is something we should not do as a society.

    I’m not going to get into the R versus D and who is worse debate because I don’t care. Both sides are unserious and as a result, suffering will ensue for me perhaps but certainly for my kids.

  11. Again, what the bond investors would see is a new power being claimed. It’s easy to think that the coin would be deposited and used to pay bills. It’s not so easy to see it being redeemed for normal debt later, and certainly not as a one-time option. I can also assure you that the Federal Reserve would not be so happy seeing the Treasury department taking up the role of creating money.

    Of course, that last part is the one I’d find the most interesting to watch! :D

  12. The Republicans are in control of the House. If they want spending cuts all they have to do is put them into a bill and pass it. It is simple. They don’t have to blackmail anyone.

    The ACA was three times larger than Medicare part D but it was passed with sufficient spending cuts and taxes to pay for it. The Republicans didn’t pay for Medicare part D, they just added it to the debt.

    The increase in the debt ceiling isn’t to provide the President with new money to spend. It is to pay for the programs that Congress passed.

    The Republicans want to cut spending on the programs that they don’t support but to not be blamed for cutting them and to increase spending on programs that they do like. If they can’t achieve this they will ruin the full faith of the American government by refusing to pay the bills that they for the most part incurred. This is their definition of fiscal responsibility. If you accept it then vote for them.

  13. The Republicans are in control of the House. If they want spending cuts all they have to do is put them into a bill and pass it. It is simple. They don’t have to blackmail anyone.

    Well in one sense they did. It was called the House Republican budget. They sent it to the Senate where nothing happened.

    The ACA was three times larger than Medicare part D but it was passed with sufficient spending cuts and taxes to pay for it. The Republicans didn’t pay for Medicare part D, they just added it to the debt.

    Entirely true but also irrelevant. Spending that is “paid for” reduces our ability to manage the debt just as much as spending that is not. The reason for this is because the “pay fors” tend to be the easiest ways to reduce the debt. The Medicare cuts to MA in the ACA are a good example of this (though the IPAB is not).

    The increase in the debt ceiling isn’t to provide the President with new money to spend. It is to pay for the programs that Congress passed.

    Only sort of true. If it were entirely true the only increase in the debt ceiling that would be called for is an increase that would pay for the rest of FY2013. That is not the increase that the President and Secretary Geitner are asking for. They are asking for an increase that would span into FY2014 and this is not “paying for programs that Congress passed.”

    The Republicans want to cut spending on the programs that they don’t support but to not be blamed for cutting them and to increase spending on programs that they do like..

    I agree with the first part of this but not necessarily the second but even the second could be correct.

    But more broadly, the entire point I was trying to make was that “If the Rs proposed a bill that cut spending (specifically) and increased the debt ceiling at the same time”, would they in fact have fulfilled their obligation assuming a large majority of them voted for it?

    My answer is yes, yours seems unclear.

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