Phony Problem, Phony Solution

Maybe it’s all kabuki, but when Judd Gregg, who knows the breed, says out loud that the House Republicans won’t see reason on the debt ceiling until the Social Security checks stop going out, it’s time to look around for bolt-holes.

Have you heard about the trillion-dollar platinum coin? It’s a completely imaginary solution, which makes it well-designed for a completely imaginary problem.

The debt ceiling crisis is entirely artificial: a mere political ploy by the servants of the plutocracy to divert public attention from the real problem: the stumbling recovery, high unemployment, and the need for more short-term stimulus. (Yes, there’s a need for fiscal sustainability as well, and re-establishing the revenue base needed for the public services we need performed, but that’s important rather than urgent.) The United States never had a debt ceiling until 1939, and doesn’t need one now. Congress can control debt by its control over revenues and expenditures; all the debt ceiling does is create the possibility that the government will not be able to borrow the money needed to carry out the laws Congress has already passed.

The Debt Ceiling hasn’t been much of a problem simply because previous Congresses have been content to do a bit of grandstanding before doing the right thing.

But now the lunatic fringe that calls itself the House Republican Conference seems committed to besmirching the nation’s honor and wrecking its credit – and possibly crashing the world economy again – as part of a demand that Barack Obama repeal the addition table. Just a tempest in a Tea Party. Yet the consequences could be catastrophic.

Fortunately, the Debt Ceiling is not the only stupid law the Congress has passed. It turns out that, back in 1996, the platinum lobby managed to get the following section written into law:

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.

Now, arguably a “bullion coin” is distinct from a “fiat coin” in that its face value is supposed to reflect its precious-metal content. But the law doesn’t say that.

So what if the Mint produces three platinum coins with face values of $1 trillion each? (There’s some debate about whose portraits should adorn them, but my nominees would be Ronald Reagan, George W. Bush, and Alfred E. Neumann; the last coin could have “What, me worry?” in place of “In God We Trust.”) The Treasury deposits the coins with the Fed; they’re legal tender, so the Fed exchanges them for $3T of Treasury bonds now in its reserves. And the coins are not debt: they’re money. Hey, presto! The debt shrinks by $3T, and we don’t have to issue more coins until after the 2012 election. Problem solved.

Yes, it’s a phony solution. But it was a phony problem to start with. The mere fact that the debt of the United States is denominated in dollars, and that the government of the United States can create dollars at will, makes the risk of a Greek-style default inapplicable to our case; Greece’s problem is that it owes Euros, and doesn’t have the authority to print them.

Of course this sort of phony solution won’t solve any real problem. If we print too many dollars, their value compared to other currencies will fall. So eventually public services need to be supported with revenues rather than printing presses. But it can solve the imaginary problem of hitting the debt ceiling.

Is it legal? Arguably, it would be illegal not to do it. The President is bound by the Constitution and his oath of office to “take care that the laws be faithfully executed.” Appropriations bills are laws; he’s not allowed to impound appropriated funds, but must expend them. If the debt ceiling isn’t raised – won’t have the cash to do so unless he issues the trillion-dollar coins. And if that’s the only way to carry out his Constitutional duties, then he is not just allowed, but required, to do precisely that.

In practical terms, this would be identical to repealing the debt ceiling, so it’s hard to see why the financial markets would have a problem with it; after all, no one but a few gold bugs minds the fact that the government can convert a few cents’ worth of paper and ink into $100 by stamping on it “Legal Tender for All Debts, Public and Private.” (The sensible approach of printing bills is foreclosed because bill issue is also limited by law.)

This may not be the only way to skin the cat. The Treasury could issue scrip that had the status of neither legal tender nor debt, but which the Treasury agreed to accept in payment of federal taxes. Such scrip would trade at the teensiest of discounts to currency, since it would be precisely as good as currency to any person or institution with a tax bill to pay. But if the House Republicans insist on acting like pre-school children, someone has to come in and be the adult supervision. Just letting the ship hit the rocks is not a practical option, even if it were a legal one.

The hardest part would be the speech. The President would have to go before the country and explain that he was willing to try to use the debt ceiling as an action-forcing device around developing a financially sustainable path of spending and taxation, but that – having failed to find honest bargaining partners on the other side – he was faced with a situation that required such an absurd charade.

And there’s the problem. The logical conclusion of that speech would have to be,

And that’s what the election of 2012 is about. Historically, this country has had two great political parties, either capable of wielding power competently and responsibly. Now it only has one. Ever since my election, the Republican leadership in Congress has made it clear that it would prefer the country’s failure to my success.

I hope you will send me back the White House; I have promises to keep, and miles to go. But if you do, send me back with enough Democrats so I can act as the leader of a great country and not the nanny of a bunch of two-year-olds. No one is more committed to the politics of compromise and conciliation than I am. But at some point you have to say, “Enough is enough.”

I’ve had enough. Have you?

And then he’d have to spend from now until November 2012 saying that same thing, over and over. He’d have to accept that our political system makes him a partisan, as well as a national, leader.

And there’s the rub. Nothing could be more foreign to his way of being.

As Machiavelli said, men are the slaves of fortune only if they are unable to adapt their modes of operation to the requirements of the times:

If, to one who governs himself with caution and patience, times and affairs converge in such a way that his administration is successful, his fortune is made; but if times and affairs change, he is ruined if he does not change his course of action. But a man is not often found sufficiently circumspect to know how to accommodate himself to the change, both because he cannot deviate from what nature inclines him to, and also because, having always prospered by acting in one way, he cannot be persuaded that it is well to leave it; and, therefore, the cautious man, when it is time to turn adventurous, does not know how to do it, hence he is ruined; but had he changed his conduct with the times fortune would not have changed.

Or, as Al Pacino said to Robert Duvall, we need a wartime consigliere. Can Barack Obama be that man?

[Cross-posted at The Reality-Based Community]

Mark Kleiman

Mark Kleiman is a professor of public policy at the New York University Marron Institute.