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To keep this short and simple, Congress passes laws mandating that the Administration raise a certain amount of funds.  Congress also passes laws mandating that the Administration spend a certain amount of funds.  Congress also passes laws mandating that the Administration borrow a certain amount of funds (at most).  When there is a conflicting gap between these three, the Administration must first turn to its other powers to satisfy the law and then, failing that, argue in court that the laws are mutually conflicting, resulting in one of them being struck or the court providing guidance on how to behave so as to remain within the law.  The Administration does have the power to fill the conflicting gap, though, and it is through the creation of new money.

This may seem distasteful to some, but it is the law: If Congress fails to raise the debt ceiling, then it is mandating -- via the constitution -- that the Administration create more money to satisfy the law.  For the Administration to do anything otherwise would actually be to make a far more extralegal and chaotic move.

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Comment Preferences

  •  Is this tied with the 14th Amendment? (0+ / 0-)

    I keep hearing about that.

    "Michael Moore, who was filming a movie about corporate welfare called 'Capitalism: A Love Story,' sought and received incentives."

    by Bush Bites on Mon Jan 07, 2013 at 05:28:47 PM PST

  •  This would make a good Dr Seuss primer (0+ / 0-)

    ...re-written, of course, to hand out at the beginning of each new congress.



    Denial is a drug.

    by Pluto on Mon Jan 07, 2013 at 06:49:17 PM PST

  •  Money facts (1+ / 0-)
    Recommended by:
    DaNang65

    The U.S. dollar has been a fiat currency for 40 years (when Nixon took it off the gold standard) and since then gold has risen from $35 to a high of about $1,600, meaning the dollar lost 97.8% of its purchasing power in terms of gold over the past 40 years. So it is pretty close to its intrinsic value of zero already in terms of 1971 dollars.

    There are currently 176 fiat currencies in existence and they have a median age of about 40 years.



    Denial is a drug.

    by Pluto on Mon Jan 07, 2013 at 06:54:48 PM PST

    •  That Trillion Dollar coin will harm (2+ / 0-)
      Recommended by:
      Duckmg, Pluto

      seniors, retirees, the disabled, minimum wage workers, and a whole lot of other folks far more than the Chained CPI, last week's outrage du jour, ever will.

      But Krugman likes it.

      Guns don't kill people. People kill people. Monkeys kill people too, if they have guns.

      by DaNang65 on Mon Jan 07, 2013 at 07:01:22 PM PST

      [ Parent ]

      •  A trillion-dollar coin wouldn't cause inflation (0+ / 0-)

        This was part of the problem with everyone getting behind the "trillion dollar" part of it: The number doesn't matter.  Imagine instead that an infinity-dollar platinum coin would be legal.  Were that minted and deposited in the Treasury's account, would all US dollars instantly be worth zero Euros?  No, because the money would be sitting in a bank account at the Federal Reserve, inaccessible until the US federal government spent it, which is almost exactly the same thing that happens now except it issues treasuries as it goes, of the same amount that it deficit spends.  

        What difference does that affect have?  Well, the Federal Reserve, which is in charge of stabilizing prices, would need to shift its policy such that the amount of US federal debt on the market kept increasing at the same rate compared to when the government deficit spent before.  The proportion of new US federal debt that the Federal Reserve buys fluctuates a lot, but for simplicity's sake, let's say they purchase a third of it.  Then that means for every dollar the US federal government deficit spends, 66 cents of treasuries end up on the open market.  In order to maintain that, the Federal Reserve would just start selling 66 cents worth of treasuries for every dollar of deficit spending after the debt ceiling was hit, and everything would proceed completely normally... at least for a while, if we do if for years then the Federal Reserve will run out of treasuries to sell, and then you'd finally get additional inflation, but a trillion dollars won't get us to that point.

  •  Constitution gives three ways to raise money ... (1+ / 0-)
    Recommended by:
    BusyinCA

    * Taxation [Article 1, Section 8, Clause 1]
    * Borrowing [Article 1, Section 8, Clause 2]
    * Coining of money [Article 1, Section 8, Clause 5]

    For the 220 years since the founding of the Mint we've been covering tax deficits with a combination of coined (roughly $10B in 2011) and borrowed money (roughly $1T in 2011).  However, 31USC5112(k) explicitly gives the Treasury permission to mint coins of arbitrarily large face value.

  •  New Money (0+ / 0-)

    We all live within some type of financial restraint. If we run out of money, we have to stop spending.

    First of all, do we really believe that the country needs the 300-400 some odd federal agencies that are funded by our tax money? We have agencies that duplicate functions. We have agencies that actually do nothing and serve no valid purpose. Why do we keep them? Why do the people have to pay for them with their hard-earned money?

    So why can't we cut federal spending by eliminating a significant number of the agencies that do nothing or do the same things two or three other agencies do?

    Why can't our Congress do down a list of the hundreds of agencies and figure out which ones serve no purpose and get rid of them? Surely this can be done without threatening to slash Medicare, Social Security, or other programs that many of us consider to be 'important'?

    •  Simplistic, bumper sticker politics (0+ / 0-)
      If we run out of money, we have to stop spending.
      No we don't, we can borrow to get us through tough times.  

      Businesses borrow money to make investments now so they can make more in the future.

      The key is paying off debt during the good times, which the Republicans refused to do when they had the chance.

      As for what agencies we have to cut...name them please.

      I'll start for you:  We could cut the military by 50% without any decline in our national security.  I have just saved the US 500B per year.   Your turn...

      Republican tax policies have led to financial conditions which have caused Republicans to demand cuts to programs they have always opposed.

      by AppleP on Tue Jan 08, 2013 at 03:13:04 AM PST

      [ Parent ]

    •  This is completely off-topic (0+ / 0-)

      What you're talking about is budget drafting, and that has absolutely nothing to do with the vestigial law that is the debt ceiling.  

      That being said, aside from the fact that governments with their own currencies (in good standing) don't have to ever stop spending, the more important fallacy in your comment is the idea that we have so many agencies that either do nothing or are redundant that we can make a significant dent in the deficit by cutting them.  But, in fact, over the past two decades we've had every major-party combination of administration with congress cut as much waste in the budget as they could find (outside of the military) and what we're left with today is a budget that's almost entirely stuff that serves a purpose.  This is what has left the Republican Party in such a bind when proposing budgets over the past three years: They keep only publishing numbers to be obtained but never proposing which actual policies and programs should be cut because they know that almost all of the stuff that's left is stuff that's very important to someone, with the biggest things being important to everyone.

      Finally, we can measure pretty accurately how much of the current deficit is due to the economic slump and how much of it is structural, and the truth is that if the economy were to get back to normal, we would need to cut/raise extremely little in order to stabilize the debt-to-GDP ratio, so our main priority in budgetting should be the restoration of the economy... but, again, that has nothing to do with this topic.

  •  Trillion Dollar Coin (0+ / 0-)

    Since the Treasury can mint coinage, why just make one coin?  How about minting a thousand platinum Billion Dollar Coins.  There's more heft to the bag, and Bill Gates and Warren Buffett and the Kochs would be able to buy one or two of them.

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