As we look down the barrel of another pointless debt ceiling crisis, several folks have managed to push a rather improbable-sounding option for sidestepping the ceiling through a legal loophole. It involves a trillion-dollar platinum coin. Dylan Matthews has the history, featuring Mike Castle, Matt Yglesias has the specific statute language and a Rooseveltian precedent, and Paul Krugman explains it thus:
The peculiar exception is that clause allowing the Treasury to mint platinum coins in any denomination it chooses. Of course this was intended as a way to issue commemorative coins and stuff, not as a fiscal measure; but at least as I understand it, the letter of the law would allow Treasury to stamp out a platinum coin, say it’s worth a trillion dollars, and deposit it at the Fed — thereby avoiding the need to issue debt.
This seems to set something twisting in the guts of some folks, sending them into paroxysms of incredulity. Kevin Drum is relatively reasonable arguing that it would be illegal, though Yale law professor Jack Balkin and a former head of the US Mint disagree.
On the other hand, Heidi Moore‘s eyes roll so far back in her head they come back around, like some archly dismissive slot machine:
This is an elegant solution – if you are a cartoon villain given to sitting in a vast underground bunker and innovating plans for world domination while petting a white cat. It makes less sense for real mortals. In fact, it has all the aspects of a group of well-financed mad scientists plotting to create a giant slingshot to avert an asteroid hurtling towards the earth.
Well, debate over! In seriousness, her piece has a couple bald inaccuracies; this one in particular:
The mint could, on the direction of Treasury, just make a platinum-finished coin that bears the face value of $1tn, but that would just create a nonsensical level of inflation in the value of the US dollar.
I tire of pointing this out, but there is no such thing as immaculate inflation. Let’s remember where we stand. The federal government is currently spending more than they take in revenue. The amount of spending is determined by congressional appropriations, signed into law by the president. The executive is thus legally obligated to spend at the levels specified for the various agencies. Now Congress is threatening to not allow the government to borrow the money they already legally obliged him to spend, creating an economic cataclysm in the process.
All the coin option is doing is creating additional spending capacity through legal trickery. It would have the same effect on inflation that borrowing the money would; in fact, it’s identical in the end to just borrowing more. As Krugman points out:
In reality, to pursue the thought further, the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back. So this is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand.
From my seat the platinum option looks like a plainly legal and reasonable option. I’m no lawyer, of course, and I’d listen to counterarguments. But what really chafes my strap is the snidely dismissive tone of Moore and company. They are abusing the sphere of deviance, in a way which reminds me very strongly of how journalists treated marijuana legalization a decade ago.
It’s striking especially that Moore doesn’t treat the people threatening to hold the US economy hostage to extract unrelated policy concessions with the same disdain she shows for the people trying to cook up a workaround. I agree, minting trillion dollar coins sounds silly. But hitting the debt ceiling would be deadly serious, and doing silly-sounding things is a small price to pay for avoiding pointless economic crisis.
Josh Barro has an actually reasonable solution dealing with all these problems at a stroke:
If Republicans start issuing a list of demands that must be met before they will raise the debt ceiling, Obama should simply say that he will issue platinum coins as necessary to pay government bills if he cannot borrow. But, to avoid causing long-term inflation expectations to skyrocket, he should pledge that he will have the Treasury issue enough bonds to buy back all the newly issued currency as soon as it is allowed to do so.
And then he should offer to sign a bill revoking his authority to issue platinum coins — so long as that bill also abolishes the debt ceiling. The executive branch will give up its unwarranted power to print if the legislative branch will give up its unwarranted restriction on borrowing to cover already appropriated obligations.
Probably the biggest obstacle to the platinum solution is the incredulity it inspires—I’ve yet to see a counterargument that doesn’t lean very heavily on simple disbelief. If Moore can come up with legal rationales against it, I’m all ears, but the snide tone is only strengthening the hand of the economic kidnappers.
