the Platinum Coin

You’ve probably read about the platinum coin idea. I posted about it before, but it’s probably worth revisiting. If it seems like it doesn’t make sense that’s because it kind of doesn’t make sense.

reagancoinHere’s the problem. Congress makes the budget. The budget mandates a certain amount of spending. The spending congress mandates is in excess of the revenue Treasury Department takes in in taxes and fees. The Treasury must make up the difference by borrowing [1. How does it do this? Mostly by issuing Treasury bonds. It sells, for, say, $100, a bond which says the buyer will receive, in 15 years, $150. Who buys the bonds? Well among others, the Federal Reserve system, which is not part of the Federal government. The Federal Reserve buys Treasury bonds, and this creates money, because the Federal reserve issues our money, which is why is says “Federal Reserve Note, although just to complicate things, the government actually prints the money. So to simplify, when the Fed buys bonds, it puts money into the economy. When it sells them, it takes money out. But the issuance of Treasury Bonds to cover the excess spending Congress mandated is a big part of the national debt.]

Starting in 1939, Congress introduced a single vote to authorize the Treasury to issue more debt. This is the debt ceiling vote. It’s not entirely clear, to me, that Congress has this authority. And you should be noticing the oddity of the situation; having passed a budget with the force of law that requires borrowing, Congress also gave itself a chance to vote on whether to authorize the borrowing it just required.

The debt ceiling vote was originally imagined as a symbolic vote. You would vote no, and then get to tell your constituents “I voted against this massive public debt!” And historically, it’s been an entirely symbolic, partisan vote. See this chart, in which Republicans always vote “no” when there’s a Democratic President, and “yes” when there’s a Republican President. The symbolism works both ways–Obama voted against increasing the debt limit in 2008, a fact which will prove embarrassing indeed*.

If you just passed a budget requiring borrowing, then refused to authorize the borrowing, then you just caused the Federal Government to default on its obligations–obligations you gave it! It’s a clear violation of the spirit, but not the letter, of the debt ceiling vote, and a radically cynical act with potentially disastrous implications.

Obama could go around this by issuing the platinum coins. The Secretary of the Treasury can mint platinum coins in any denomination he sees fit. Not gold, not silver not copper: platinum specifically. It was intended as a way to sell commemorative coins to the collector market. The Treasury Sec. could order up a platinum coin commemorating, say, 9/11, and design and mint  a $20 dollar coin with a picture of heroic firemen and an eagle on it. According to law, he can print as many or as few of these as he/she likes, in whatever denomination he/she likes.

The Treasury Secretary could simply mint two platinum coins, each worth a trillion dollars, deposit them at the Federal Reserve, and write checks based on that deposit. It is absolutely legal, and would not cause inflation because the coins would only be used to cover the spending congress has already mandated.  But the debt ceiling vote would be rendered once again purely symbolic.

Should he do it? Yes, absolutely. It would violate the spirit, not the letter of the law, and it would be a radically cynical act, but blocking the debt ceiling increase is itself a violation of the spirit if not the letter of the law, and a radically cynical act. And there’s the 14th amendment’s prohibition on calling the debt into question.

The precedent here is maybe Franklin Roosevelt’s actions under the Emergency Banking Relief Act of 1933, which FDR used to mandate the sale of gold bullion to the Treasury, thus taking the US off the domestic gold standard. Roosevelt drew on an earlier WWI act, the 1917 Trading with The Enemy Act, which gave Woodrow Wilson the power to seize assets of enemy nations in an emergency. These acts, still in force today, establish the precedent that a state of emergency gives the President powers to intervene dramatically in the economy. Neither of these precedents gives much confort to libertarians.

But failure to authorize the debt ceiling increase would amount to a national emergency. The Treasury Secretary would have to decide who to pay and wh0 not to pay. Federal contractors might not be paid. Military personel would not all be paid. National Parks would close. The FBI might go unpaid. Contracts with foreign governments might not be paid. Medicare or social security checks might not go out. Very large numbers of Federal Employees would have to be laid off. The impact on the economy would be enormous. But the key advantage for the GOP is that Obama would take the blame for each unpaid obligation, not congress.

Minting the coins would not be illegal, though it would be unorthodox. It would not cause inflation. It would not destabilize the economy–quite the opposite. It would constitute an end run around congressional intent, but using the debt ceiling as blackmail is itself an end run around congress’ own intent. 

The GOP has been really brilliant in its use of the debt ceiling vote. It’s making the deficit look like Obama’s fault, and it’s putting the blame for its own inability to reign in spending and/or increase revenue on the executive branch. It dramatizes the gap between what the govt. takes in and what it spends. If Obama mints the coins, he’ll continue to get the blame for the debt, and they will accuse him of assuming dictatorial powers etc etc. It will be very bad for Obama, in  a public relations sense. But he can’t have a third term. Now is the time to act decisively to end this form of blackmail, and establish a rational footing for discussion about the national debt.

I suspect he won’t do it.

The platinum coin idea is admittedly odd. Earlier I compared it to daylight saving, in which time of day was understood as both the natural postion of the sun and as an entirely arbitrary number changed twice a year. Like daylight saving, the platinum coin sits right where our idea of money as tangible good runs into our idea of money as purely symbolic. It’s particularly calculated to outrage conservatives, because it forces these two idea to collide. To take something with a real material market value–platinum–and give it an arbitrary dollar value is a gross affront to hard money libertarian economics, and indeed to the very idea that economics should and does reflect some kind of natural law.

The coins in one sense would simply be commodities. The treasury could, for example, produce platinum statues of the washington monument, and price them at 20 bucks a piece, and sell them. What’s different here is the special and strange relationship between the Treasury and the Federal Reserve, and the particular law authorizing the minting of platinum coins. The Fed would have to accept them at face value, because according to law their face value is exactly what the Treasury Secretary says it is.

That seems odd, but it’s what law does. There is a piece of property, and one day the law puts a sign on it that says “private property. No trespassing.” Nothing physical has changed, but everything about the land has changed, including the uses to which it can be put. Similarly, it’s 10:07 EST at the moment, but when daylight saving resumes this same moment in the sun’s passage will now be 11:07. Nothing has changed except the designation in law, but as a result, everything shifts. The law says you can only drive 25 miles per hour in this space; it says we are at war with “terrorism;”; it says X or Y is illegal, it says an “adult” suddenly appears at age 18 except when it comes to drinking. All these things are pure fictions with real and possibly beneficial and necessary social effects. It can say these two coins are worth a “trillion dollars apiece” and produce real social effects. In this case, the effects would be beneficial.


*The debt ceiling vote appears to violate the 14th amendment, which says very clearly, in section 4, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

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