The idea of using an obscure provision of a 1996 law about platinum coinage to defang the debt ceiling was aired back in 2011 during the first ceiling crisis, but it never attracted much mainstream attention, much less endorsement. All that has changed in the past few weeks. The idea received extensive coverage on CNN a few days ago, and Krugman has come out as intrigued, if not clearly for it.
The idea is that we happen to have this law on the books, which says the administration can mint platinum coins in denominations of its choosing, and add to the Treasury the difference in value between the cost of producing the coins and their face value. The plan is for the president to order a one trillion, or five trillion, or even a sixty trillion, face-value coin to be minted, and its value credited to the Treasury so that the national debt will be instantly one, or five, or sixty trillion less than it was before. This drop in the debt will bring it safely under the ceiling, and thus the potential of default if the debt ceiling is breached will be averted.
Would this idea work? Would it be a good idea even if it did?
Let's turn this notional platinum coin over a few times in our minds, to see what we can conclude about its true worth.
For starters, the 1996 law concerning platinum coinage was very clearly not intended to allow trillion dollar coins. That law concerned the trade in coinage, and allowed for the US to make some small profit therefrom. Why let the Franklin Mint corner that market? The law was clearly not intended to allow the president to add a trillion to the Treasury entirely at his pleasure, without Congressional approval.
The attempt to use laws in ways that they were not intended to be used can end poorly for any number of reasons. Even if this doesn't get slapped down by the courts as a disallowed misuse of the law (and the courts may not become involved in this case for reasons of standing), playing fast and loose with the law is likely to appear to public opinion to be -- playing fast and loose with the law. If the House is misusing the ceiling law to force the US into default, the correct response is to not go along with that misuse, not to come up with some offsetting abuse of some other law.
Much worse than being a distortion of the coin law, having the president mint a trillion dollar coin to add to the Treasury violates one of the fundamental structural principles of the federal govt as set down in the Constitution. Money goes into the Treasury from taxes and borrowing only by public law, and it goes out of the Treasury as spending only by public law. While it is true that the president would have to usurp both ends of that equation, and we would need to add to this ability the platinum coin gives him to control revenue without Congress, the power to spend without Congress, before we had a complete presidential dictatorship -- going "only" half-way to dictatorship is still about as monumentlally unacceptable a power play as you could come up with.
Direct legal or political consequences aside, none of us should even consider givng the president even just one end of the power of the purse. Only think of giving Obama this power if you would be happy to see the next Dubya enjoy the freedom to add trillions to the Treasury at his sole pleasure, for whatever purpose he might have in mind.
But of course, there would be very prompt and direct consequences, disastrous consequences, to trying the coin gambit.
Slapping down this egregiously unconstitutional power grab is perhaps the only scenario which sees SCOTUS willing to touch this whole debt ceiling mess with a ten foot pole. They would not want to get involved with the status of the ceiling law itself, and what it entails, but this coin thing could be shot down as a a clearly severable issue that wouldn't drag them into the wider issues of the ceiling law mess. D-friendly justices on the Court might be inclined to not get involved so as not to hurt our side, but the R-firiendly majority can force the SCOTUS to hear the case. And once forced to issue an opinion, even the D-friendliest among them will vote the coin down as clearly unconstitutional. The decision would be 9-0, so we wouldn't even be able to blame it on the Federalist Society, as we can with Citizens United and Bush v Gore.
Caught red-handed trying to usurp half of Congress's power of the purse, and slapped down by a 9-0 decision, our side would then be maximally vulnerable to whatever the other side wanted to demand. We would only be saved from total public policy disaster insofar as the Rs don't really want any public policy out of this, they really only want to see the Ds humiliated. They would get plenty of that if we tried this coin gimmick.
Think of it this way. At the end of the day, whatever our side does has to be made to seem fair and reasonable to the electorate. That should be doable even if our response to a breach of the ceiling is that Treasury keeps on borrowing enough to pay all of our legal obligations.
It's common sense that you can't use laws in ways that were not intended. Our side needs to hammer away at this in respect to what the House is doing with the ceiling law. Yes, the ceiling law presents the appearance of forbidding Treasury to go on borrowing after the ceiling is reached. And perhaps when the first such ceiling was passed, when that ceiling was the only Congressional limit on borrowing by the Treasury, the ceiling actually did have the force of law blocking borrowing that exceeded the ceiling. But we have since started consolidating our revenue and spending into the annual budget process. The real debt limit now is whatever Treasury has to borrow to meet all US obligations created by the annual budget laws.
What the Rs are doing now is trying to use the outdated, ceremonial, debt limit, a limit since replaced as the real limit by the budget process, to let just one chamber of Congress usurp the power to repeal spending committments that only the full Congress possesses. This very same House has already voted, when it approved the budget we're working under right now, for all the spending that they now claim they have the right to unilaterally force the US to renege on. That's obviously wrong. The law -- and we have to consider all the statutes together when we talk about the law, because the ceiling statute doesn't make all the statutes obligating spending go away -- doesn't just allow Treasury to borrow beyond this obsolete formal ceiling, it requires Treasury to borrow as much as it has to to meet the true debt limit of the US in 2013, which is whatever borrowing is needed to meet all of our legal obligations.
The administration, understandably, would rather not be put in a position of even seeming lawlessness by having to ignore the ceremonial ceiling. So they trumpet to the skies that default will happen if the ceiling is breached, they reject all alternatives. They cannot, until the breach is upon us, relent on that line, that ceiling breach means default, because to do so would allow the House to just go for a no-cost breach. The Rs would know that there would be no US default arising from a breach, and therefore would have no downside to putting the admnistration into a position of seeming lawlessness when Obama orders Treasury to keep on issuing debt. And, in all probability, this strategy will work, the House will not follow through and refuse to pass a clean rise in the ceiling.
But our side needs to be ready for war in case deterrence doesn't work. And we win that war for public acceptance of the Treasury simply ignoring the ceiling, by educating the public. It is inherently difficult, under most circumstances, to educate the public about such matters as the annual budget process, much less the history of federal budget practices, because they really could care less about the details of something that, however important, is working well enough without their attention. Most people could care less about the details of how the sun produces all that heat and light, however much they depend on that bounty continuing, because astrophysical processes seems to manage quite well on their own producing that bounty without any attention from any of us. But if the House makes the public care by threatening them with the immediate disastrous real-world consequences of default, that will be one of those rare teachable moments, and I for one trust that the public will rise to the occasion.
Will we rise to the occasion? Somebody is going to have to be there explaining the budget process to the public if this is to have a happy ending, if the public is to be educated and reject this attempted coup by the House. Are we going to be busy trying our own pathetic coup with this platinum coin gimmick, or are we going to be clear of mind ourselves about this issue, so that we can help the public get clear on it?
Treasury would go on borrowing under either the muddled platinum coin idea, or the clear-headed way of just ignoring the ceiling, so they're the same plan in that respect, what Treasury does. But the clear-headed approach will be a lot easier to explain clearly to the public, than some obvious gimmick like the coin, even if SCOTUS doesn't shoot it down.
We're understandably worried right now. We have an administration that offers as its only plan for dealing with House thuggery on the ceiling the hope that the other side will back down rather than send the US into default. That might work -- with reasonable people, but that's not what we're up against, is it? We fear that our leaders wlll once again give in because our side is the more reasable, the less willing to see the hostage killed.
Don't let those fears stampede you into muddled thinking, into placing your faith in miracle cures and legal gimmicks like the platinum coin. You and I need to remain clear-headed in this crisis. Let the other side use up all the panic in the room. In the end, the administration will do the right thing, it will not default, it will have Treasury ignore the ceiling. We need to be ready to do the right thing, get behind that solution, be ready to explain that outcome.