Odds are by now you've heard at least something about the "Trillion Dollar Coin" idea that, thanks in part to Up regulars Joe Weisenthal and Josh Barro, has managed to catapult from the margins of the internet to the center of Beltway conversation. The idea, first proposed back in 2010 by a Georgia lawyer commenting on a blog under the screen name Beowulf, has now received endorsements from Nobel Laureate Paul Krugman, former director of the U.S. Mint Philip Diehl and a number of members of Congress.
On Wednesday, White House spokesperson Jay Carney even fielded a question about the proposal from NBC's Chuck Todd:
Todd: "Following up on debt ceiling, I know your position hasn't changed on the 14th Amendment. Do you guys have a position on this trillion-dollar coin business?Carney: I would simply go back to what I said. The option here is for Congress to do its job and pay its bills, bills that have already been racked up.Todd: Will you fully rule it out?Carney: You could speculate about a lot of things, but there is--nothing needs to come to these kinds of, you know, speculative notions about how to deal with a problem that is easily resolved by Congress doing its job."
Well, sure, but if Congress doesn't do its job here's how it would work: Republicans are once again threatening to hold the debt ceiling hostage, as they did in the summer of 2011. That is, they will not vote to raise the limit on the amount the U.S. government can borrow unless the White House and Democrats agree to some draconian spending cuts (nevermind we're already slated for European levels of austerity this year). If no deal is reached, the U.S. has to start stiffing its creditors, deciding how to prioritize payments, which will almost certainly cause markets to freak and interest rates to spike.
Enter the coin. It turns out that there's a sub-section of the U.S. code called denominations, specifications, and design of coins that includes the following provision: "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." The original intent of this legislation was to give the secretary of the Treasury some latitude to issue commemorative coins for collectors, but the plain meaning of the statute is clear. The Treasury can issue a platinum coin in any "denomination" as the secretary of the Treasury designates. The idea of trillion dollar coin advocates is that the president would direct the treasury to mint a trillion dollar platinum coin, and then deposit it in the Treasury's bank account at the Federal Reserve and--voila!--we now have a trillion more dollars in the bank, and we don't have to worry about the debt ceiling.
If this sounds surreal, or ridiculous, or magical to you, you're not wrong! It's totally bizarre and unprecedented. Even if it's legal, as many legal experts believe it is, it seems to run against our expectations of how our government does and should behave. It's the kind of thing that just isn't done. But that, you see, is the entire point. Behavior of individuals within an institution is constrained by the formal rules--explicit prohibitions--and norms--implicit prohibitions that aren't spelled out, but just aren't done. And what the modern Republican party has excelled at, particularly in the era of Obama, is exploiting the gap between these two. They've made a habit of doing the thing that just isn't done. Requiring a 60-vote majority for nearly every simple procedural vote just wasn't done, and then Republicans did it. Refusing to confirm any candidate for an open position because you objected to the position's very existence just wasn't done, but Senate Republicans did precisely that with the newly created Consumer Finance Protection Bureau, which they continue to boycott. And most clearly, before the summer of June 2011, opposition parties didn't use the debt ceiling as a bargaining chip with which to extract ransom, and they certainly didn't credibly threaten default as a means to gain political leverage.
The president has been extremely reticent to meet this extraordinary degradation of previous norms with innovations of his own. He is, at heart, an ardent institutionalist. But there is no way to unilaterally maintain norms, once they're gone they're gone and the only way to produce a new set of healthy norms is to do some innovating of your own. And you can tell, I think that the trillion dollar coin idea spooks Republicans, precisely because it would be so out of character, it would so gleefully and flagrantly violate their own expectations about how Democrats play the game. The National Republican Congressional Committee has gone ballistic on the idea, sending out press release after press release railing against the coin, and NRCC chair Greg Walden, spying a political opportunity, has rushed into the fray.
"The last thing we need for Treasury to mint a new coin made out of platinum that would weigh, by the way, Neil, 44 million pounds if it was tied to the value of platinum like gold has to be tied. I mean--that would sink the Titanic," Walden said.
The only problem is that he completely misunderstands the actual idea. Just as a $100 bill isn't made of $100 worth of cotton, a new trillion dollar coin wouldn't be made of a trillion dollars of platinum. Just a single, small bit of platinum will do. That's all: it's really just an invention.
Economist John Kenneth Galbraith once said: "The process by which banks create money is so simple that the mind is repelled." And the same can be said of how our government creates money. The simple truth is it creates money simply out of thin air. Someone at the Federal Reserve punches in a number on a spreedsheet and--voila!--more money. At moments of profound crisis it was precisely this kind of monetary magic that helped the U.S. avoid catastrophe--Abraham Lincoln printed greenbacks to fund the union and his opponents mocked him mercilessly for doing so -- which this cartoon from the time, depicting a machine spewing bills, shows. And FDR ditched the gold standard to get us out of the Great Depression. Both those ideas were, at the time, probably about as ridiculous as a trillion dollar coin. While there are rules that guide legal tender, at base, what makes money valuable is simply social convention, a norm. We all agree it's valuable, so it's valuable. The genius of the trillion dollar coin isn't just that it provides some much needed leverage against a foe unencumbered by any sense of propriety, it also illustrates the uncomfortable, foundational reality of modern capitalism: money is nothing more than a shared illusion.
It's a kind of magic. But is it good magic... or bad magic?