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In my last three posts, I've critiqued the new wave of mainstream posts and commentary on Platinum Coin Seigniorage (PCS) on my way to making the case that the MSM are missing "the big story" about PCS. These  include posts by Pethokoukis, Wiesenthal, Carney, Drum, Yglesias,  Yglesias, and an MSNBC cable segment by Chris Hayes. All of these have looked at PCS in terms of the Trillion Dollar Coin (TDC) and its possible impact on the impending debt ceiling shakedown. None have viewed it from a broader point of view. Let's now look at commentaries by Harry Bradford, and Brad Plumer.

Harry Bradford

Harry Bradford posted on the possibility of minting two $1 T platinum coins. He does the journo thing of citing a bunch of people saying this or that about aspects of the TDC proposal while doing very little evaluation and analysis. More or less, his post is just a モhe said, she saidヤ treatment.

Bradford begins by citing Chris Krueger's Guggenheim report, and cites Krueger's opinion that using the coin option might be inflationary, and might trigger a wave of law suits, Of course, I've already indicated above that neither of these things are likely to happen and that Krueger offers no reason for thinking these two effects would come to pass. But Bradford takes Krueger's view at face value.

He then quotes one economist as telling the Washington Post that "A government shutdown is much more straightforward" than using PCS. In reply to which one might ask: more straightforward for who? The journalists who have to write about it and won't have to research PCS beyond the TDC meme, or the millions of people who will suffer economic hardship for at least some period of time because the President decided to engage in that kind of brinksmanship, rather than just mint a platinum coin with a high enough face value to take the debt ceiling off the table as a negotiating tactic supporting the strategy of "shock doctrine" designed to emasculate the social safety net?

Bradford then cites Pethokoukis as saying that using the coin might cause inflation, a point I examined here, indicating that Pethokoukis was following Krueger's opinion and that Krueger's opinion, was just that, a statement supported by  no argument at all.

Then Bradford points out that others incuding WaPo's Brad Plumer, don't believe it would cause inflation since the money from the coin would not be directly spent into the economy. And he ends by indicating that in July 2011 Felix Salmon wrote that if the coin were used, then investor confidence in the US might be damaged; but that I debated that view in a post at Naked Capitalism.

Bradford neither tells us why Salmon thought investor confidence might be lost, nor why I disagreed with him. As it happens, Salmon thought that using the platinum coin would cause the US to lose reserve currency status. I argued against that point by questioning why that would happen as long as we were paying our debts with the seigniorage. I also pointed out that it would be very difficult to find a substitute for USD, and went over the difficulties, on a case-by-case basis, involved in shifting the reserve currency to another nation.

Brad Plumer

Brad Plumer's post "Could two platinum coins solve the debt-ceiling crisis?" touches the various bases already reviewed above, including calling the coin and other options for getting around the Congressional prohibition, "wacky," while quoting the Peterson Institute for International Economics's Joseph Gagnon to the effect that using the the two coins would not be inflationary, because the Government would just be using the proceeds to spend at existing levels. This part is correct, of course.

Then Plumer adds something new to the discussion:

This strategy is hardly risk-free. Opponents could plausibly argue that the original law was intended to set rules around commemorative coins, not to finance the operations of the government. And, of course, the political blowback would be fierce.

Indeed, even Balkin now says that he thinks the platinum-coin option is too risky. If Congress can't or won't lift the debt ceiling, then most likely the Obama administration would have to start shutting down parts of government so that it doesn't default on its debt. That, in theory, would prod Congress to act.

"All those other ideas [like the platinum coin option] are very uncertain, and they could lead to complicated litigation," says Balkin. "A government shutdown is much more straightforward."

Plumer is right that the political blowback would be fierce if the President used the PCS option. That's why I think it's best for the President to use it in a way that introduces definitive changes in the Treasury's authority to spend Congressional appropriations without borrowing, and in the political context of fiscal politics by creating the wherewithal to pay off the current debt. I favor minting a $60 T proof platinum coin to do that, to which the political blowback would be still more fierce. But, if one is going to get fierce political blowback in the first place then one may as well get it for changing something fundamental, rather than for using a band-aid over a short-term problem (the debt ceiling). For reasons I've outlined in this post and this one, I think minting a $60 T coin, would be a political game-changer for progressives and can build enough popular support for the President to survive any political blowback.

But as Plumer says, Jack Balkin now thinks that the platinum coin option is too risky to use, not only for political reasons; but also because he thinks it would spawn complicated litigation.  It may spawn litigation challenging the President's action based on the intent of the law. But as I argued above, suing and winning based on the question of Congressional intent is very difficult and tests the expertise of justices who like to stick to the text of legislation, and also there is the question of standing.

Balkin thinks that it's more "straightforward" for the President, in case of Republican intransigence, to end the debt ceiling crisis by prioritizing spending with bond holders first on the priority list, and with gradual shut downs of portions of the Government as revenue shortages require. I agree with Balkin that this way of handling the situation will eventually work for the President politically and the Republicans will be blamed as they were in 1995 for the shutdown.

However, many people will suffer the effects of the shutdown; so for them this is not a "straightforward" course; but one that introduces many more complications into their lives than the President minting a $60 T platinum coin and then braving political blowback and litigation, and perhaps attempts at impeachment by the House.

It's worth noting that Jack Balkin has just posted an excellent argument at the Atlantic for his preferred strategy of pursuing the government shutdown course, and a version at his own blog that refers to PCS.

In the one on his blog he says:

Still others have begun discussing alternatives like trillion dollar platinum coins and the sale of exploding options, which I discussed during the 2011 debt ceiling crisis. These two ideas are quite interesting theoretically, but they are practically irrelevant.

Why? He doesn't make that clear except to go on to explain why the government shut down strategy will work. And later on in the post he says:

In fact, if the president ignored the debt ceiling and issued his own bonds, or if he publicly announced that he would mint trillion dollar coins or sell an exploding option to the Federal Reserve, he might lose the high ground in the standoff and actually be politically weakened. First, Republicans would feel no obligation to raise the debt ceiling because Obama would have taken all the pressure off them, and government functions would continue normally. Second, any of these strategies would give Republicans the opportunity to go on the attack. They would insist that Obama was acting illegally, go to court to stop him, and possibly even try to impeach him.
I agree with this, but only if Obama were to chose one of the low trillion dollar platinum coin options. Those are no good, because they leave the fundamental fantasy of fiscal scarcity intact. We can see that it is this kind of option Balkin is thinking about because even when PCS is used he still sees raising the debt ceiling as an issue that needs to be settled. But if a $60 T coin option were used, then the debt subject to the limit would be paid off and the debt ceiling would never be an issue, at least for the foreseeable future. In my next post, I'll get to the Big Story about PCS, the MSM commentators missed.

(Cross-posted from New Economic Perspectives.)

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Comment Preferences

  •  asdf (3+ / 0-)
    Recommended by:
    doc2, Bluehawk, FG
    Why? He doesn't make that clear except to go on to explain why the government shut down strategy will work.
    Don't forget that, for Balkin, the constitution is very much an evolving document.  There really isn't such a thing as the Presidential power that preexists and cuts through political discourse; rather, the contours of constitutional powers emerge out of that political discourse.  If the president is politically incapable of minting a trillion dollar coin, then it's also a constitutional non-starter.
    •  Exactly. (1+ / 0-)
      Recommended by:

      People run the legal traps and think that if it can be done, it may be done. But politically, in the real world, the idea is in the realm of ridiculousness. For a new idea to have merit, being physically and legally possible are simply prerequisites; they are nowhere near sufficient to actually make an idea feasible.

      •  What is ridiculous is the way we have been (2+ / 0-)
        Recommended by:
        catfood, psyched

        running our government finances for so long. It makes no sense at all, but the platinum coin approach makes great sense and will help us build a better world. It will enable us to make 100-year plans and carry them out with full employment and with good wages. It will enable us to refurbish and then constantly maintain our infrastructure.  There is much more that this approach will let us do, but if I mention them here and now I fear that it would set off a host of heart attacks.

        Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

        by hestal on Fri Dec 14, 2012 at 07:31:29 AM PST

        [ Parent ]

  •  Obama himself (0+ / 0-)

    has discarded the minting-a-coin option.  Which tells me that it may not survive litigation, and may be too expensive politically.

    "Kossacks are held to a higher standard. Like Hebrew National hot dogs." - blueaardvark

    by louisev on Fri Dec 14, 2012 at 07:04:28 AM PST

  •  Good Post (4+ / 0-)
    Recommended by:
    Dustin Mineau, Ian S, catfood, psyched

    The denizens of the Daily Kos need more exposure to Modern Monetary Theory.

     PCS would simpally take the power to create money and move it from the for profit sector to the for the public good sector.

    Most people who post still believe that PCS is inflationary and do not know that the banks currently create money out of thin air 24/7  and do not know what Fractional Reserve Banking is.

    To Goldman Sachs in according to their desires, From us in accordance with the IRS.

    by Bluehawk on Fri Dec 14, 2012 at 07:07:47 AM PST

  •  Congress has the power to coin money (0+ / 0-)

    The president does not have such power.

    Practice tolerance, kindness and charity.

    by LWelsch on Fri Dec 14, 2012 at 07:11:29 AM PST

    •  The Congress has passed legislation that gives... (2+ / 0-)
      Recommended by:
      catfood, psyched

      the Treasury leeway to mint coins on its own without going back to Congress. It does this all the time in case you hadn't noticed. In the case of platinum, the legislation does not put limits on the face value of the coins produced. So the Treasury Secretary is empowered to make platinum coins of any denomination and the face value does not need to bear any relation to the metal value of the coin.

      Don't stay mired in concepts of money that became irrelevant once we went off the gold standard and adopted a true fiat non-convertible currency. Do yourself a favor and read up on Modern Monetary Theory. It just may open your eyes.

      Just another faggity fag socialist fuckstick homosinner!

      by Ian S on Fri Dec 14, 2012 at 02:06:19 PM PST

      [ Parent ]

  •  Another excellent job! nt (2+ / 0-)
    Recommended by:
    Ian S, psyched

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Fri Dec 14, 2012 at 07:33:45 AM PST

  •  Missing the larger point (1+ / 0-)
    Recommended by:

    You'll never go broke betting on the corporate media for missing the most important part of a story.

    Our Dime: Understanding the Federal Budget

    by Dustin Mineau on Fri Dec 14, 2012 at 08:50:26 AM PST

  •  You are correct my friend..... (3+ / 0-)
    Recommended by:
    Ian S, catfood, psyched

    The platinum coin really changes nothing as far as policy.  It's pretty much just an accounting entry, with no real world economic impact. But if the only considerations here are then policitcal, it's hard to imagine a bigger political winner.  

    First off, with regard to litigation, courts will tend to side with what the law actually says, ahead of what might have been the intent.  So it doesn't matter if this provision was never intended to be used this way, as the plain language of the law clearly allows it, and the plain language of the law is going to trump any messy speculations about intent.  

    Second, while people would certainly blame congress if there is a shutdown, the truth is many would blame both parties equally, and the media would certainly encourage this line of thinking.  Even today, Democrats in congress only have a 40% approval rating.  Better than Republicans, sure, but the Republican strategy there has long been to create federal crises and try to spin like crazy to ensure that everyone is blamed.  Why plays into their anti-government agenda?

    Third, one of the biggest barriers to policy change is the widespread ignorance of how the economy actually works.  Amongst the biggest problems here are the right wing ideolgies which wrongly insist that money printing will cause inflation, and that governments must balance budgets.  What better way to prove this wrong, then to just do it?  

    We know nothing would change, but that's the point.  The issuance of a $10T coin, for example, would be sure to get a tonne of media coverage.  People who don't normally pay attention to economic data would be aware of it.  And then nothing would happen.   There would be no inflation.  There would be no sell off in bond markets.  All that happens is the "debt crisis" created by the need to raise the "debt ceiling" would just go away.  

    And paying down say, half the debt, again has no real world economic impact. But it's another tremendous photo-op and rhetorical wedge. They can try to argue over who is to blame for a government shutdown. But there would be no question who would get credit for ending or preventing a shutdown, ending a debt crisis, and paying down the national debt. Republicans would have had nothing to do with it.


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