Having a statutory debt limit is silly. Maybe it’s time for an equally silly solution to the problem?
The idea of having the Treasury mint a $1 trillion platinum coin has been floating around for a while – there’s even a We The People petition supporting it at the White House website – and Josh Barro is the latest to promote its merits.
I’m glad to see Representative Jerrold Nadler lending his support to the idea that PresidentBarack Obama should avert a debt-limit crisis by issuing large-denomination platinum coins, as permitted by 31 USC § 5112.
In case you’re not familiar with this idea: In general, the Treasury Department is not allowed to just print money if it feels like it. It must defer to the Federal Reserve’s control of the money supply. But there is an exception: Platinum coins may be struck with whatever specifications the Treasury secretary sees fit, including denomination.
This law was intended to allow the production of commemorative coins for collectors. But it can also be used to create large-denomination coins that Treasury can deposit with the Fed to finance payment of the government’s bills, in lieu of issuing debt.
This is admittedly hard to take seriously, but federal law does empower the Secretary of the Treasury to “mint and issue platinum bullion coins and proof platinum coins,” which at the Secretary’s “discretion,” may be “prescribed from time to time.”
This gave some creative folks an idea for how to resolve a debt-ceiling crisis: if Congress won’t allow the White House to borrow money to finance Congress’ spending, the White House could instead have Tim Geithner (or his successor) mint a platinum coin (or a series of coins), in unlimited quantities, to pay the government’s bills.
Or so the argument goes.
Barro added that the White House would worry about inflation, so the new coins would come with a pledge to “have the Treasury issue enough bonds to buy back all the newly issued currency as soon as it is allowed to do so,” along with an offer “to sign a bill revoking his authority to issue platinum coins – so long as that bill also abolishes the debt ceiling.”
Obviously, this is a gimmick, and no way for a 21st century superpower to deal with its finances. Then again, the idea of the legislative branch refusing to allow a debt-ceiling increase to pay for spending its already spent is also no way for a 21st century superpower to deal with its finances.
Keep in mind, Congress is putting the president in an awkward legal position. On the one hand, the White House is obligated to follow the law that creates the debt ceiling. On the other, the White House is also legally obligated to protect the full faith and credit of the United States.
In other words, in two months, President Obama can’t pay the government’s bills, and he can’t not pay the government’s bills. The mind-numbing dilemma leads to desperate ploys, such as calls for platinum coins.
And as Brad Plumer explained a year and a half ago, this gimmick at least has the benefit of simplicity: “[T]he Mint makes a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Federal Reserve moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations in the near term without issuing new debt. If the Fed was worried about all that newly created money being pumped into circulation, it could always counteract the inflationary effects by selling off the $2 trillion in securities it owns from quantitative easing (thereby taking an equivalent amount of money back out of the economy).”
Is the gambit really legal? Opinions vary, though Kevin Drum argues persuasively that the plan wouldn’t stand up in court and shouldn’t be taken seriously.
But the fact that this is even a topic of conversation reinforces what is plainly true: radicalized congressional Republicans sure have made a mess of things.