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Saturday, January 05, 2013

The Platinum Debt Limit Option

Coin stamp being made
First and foremost, let's get this little factoid out of the way: raising the debt ceiling doesn't add to the deficit in any way. It's a way to pay for funds that have already been spent -- and authorized -- by congress. Therefore, not raising the debt ceiling likewise does nothing to reduce spending, deficits, or the national debt. It would, however, mean economic disaster. Think of it as a credit card payment -- except with this card, if you miss one payment, you default and go into bankruptcy. Seriously, this is really, really bad.

So Republicans who threaten to vote against raising the debt ceiling as a way to reduce spending and the deficit are lying or stupid. The move would save nothing, while the actual cost may be incalculable. Social Security, Medicare, and Medicaid payments wouldn't be made. Federal employees -- including members of the military -- would not be paid. Federal bondholders worldwide would see their bonds become irredeemable. The ripple effect would spread out from the US and likely create a worldwide economic crisis, earning us few friends in the world. Our credit rating would crash. We may even finding ourselves facing economic sanctions from bond-holding nations as a result. This would be an incredibly boneheaded move and anyone who seriously argues for taking that route loves America not at all.

It's a variation of the he-who-smelt-it rule that those who mostly loudly proclaim to love America most are those who love her least. Tea Party Republicans claim to be the biggest freakin' patriots in the whole world, while arguing that America's best days are behind her, that great things are now impossible, that we must scale back our national ambitions and become a small people with measly dreams of a not-extremely impressive future. They march under a banner of "Status Quo Forever!" -- except they advocate a step back and down from the status quo. They're cowardly anarchists who hate government, but want to keep the police and military. Otherwise, everything can go. We used to all be in this together as a team, 'baggers envision a nation where everyone's on their own. One nation, no longer individual but divided into millions, each trying to get what they can cheat others out of and to screw everyone else as fast as they can. Social Darwinism run amok.

So, of course, we can't count on these guys do actually do what's best for the nation. There's no guarantee that they will. And that's where a crazy scheme to mint a trillion-dollar platinum coin comes in.


Capital New York:

Rep. Jerry Nadler proposed issuing a trillion-dollar coin to circumvent an impending fight over the federal debt ceiling, and the idea has taken off.

The idea, which Nadler assured me was "absolutely serious," was endorsed by Josh Barro of Bloomberg View and a Twitter campaign by Joseph Weisenthal of Business Insider using the hashtag #mintthecoin, and it's now one of those White House petitions.

The idea, which Nadler didn't make explicit, is that the coin is a bargaining chip, meant to counter the equally ill-founded idea that Congress' discretion over the debt ceiling was intended to be used regularly as a negotiating tool. (Congressional Republicans are explicitly promising, once again, to use the threat of national default to compel the president to cut spending in the next round of budgetary negotiations.)

See, it works like this: the treasury has the authority to mint coins as part of what Matthew Yglesias describes as a "poorly drafted subsection" of a federal statute regarding "Denominations, Specifications, and Design of Coins." The idea is that the mint can stamp out commemorative 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."

So the Treasury stamps out a platinum collector's coin, gives it the denomination of one trillion dollars, which the government then uses to back debt payments. This is all absolutely serious, by the way. Crazy times call for crazy measures. And a former head of the Mint not only says it would work, but gives it his (admittedly backhanded) endorsement.

"From everything I know about this, it is possible," Philip Diehl, who headed up the Mint from 1994-200, told Capital New York. "Now, is it likely? I think it's highly unlikely to happen. It just looks so ridiculous for the major economic power in the world to produce a trillion-dollar coin in order to balance its books. But is that any more ridiculous than the country being held hostage over default? I think not."

And the effect on our economy of the government literally "just printing money," as conservatives love to put it? Pretty much none, really.

Ed Kilgore:

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.

In other words -- and I know that you conservatives are going to have a hard time getting your heads around this -- debt creates wealth. Interest on debt is not a visit from the Interest Fairy, it's the creation of actual money. Debt in itself has growing value and that value is paid out as interest. That's what you call yer "capitalism." By borrowing the money, congress has already "just printed money." A trillion dollar coin can't increase inflation, because that trillion dollars of spending already exists and people are already getting paid.

OK, so the point of all this is not to stamp out a trillion-dollar coin and be done with it. As Diehl points out, it would just look ridiculous. The point is to stamp out a trillion-dollar coin as a last resort. Not only would this provide a mattress to land on if congress did choose to default, but it would defang Republicans looking to take the economy hostage in order to get cuts in spending. It's not adding a trillion to the money supply, it's giving a trillion that's already there a physical presence.

Besides, remember that fiscal cliff thing we just went through? Yeah, that was a leftover from the last debt ceiling fight -- meaning that we're still squabbling over the last debt ceiling increase with the next one looming. If we don't end this now, it could be pretty much the only thing our government does, as one debt ceiling fight gets folded into the next and the next, until we have a big, giant snowball of economic stupidity that becomes our national mascot.

The White House should signal that the trillion-dollar coin is plan B -- but a definite plan B. They should commission an engraver to create the design. They should cut the stamp and have it ready and waiting. They should put out press releases about the exact method they'll use to destroy the stamp once the coin is minted, about where the coin will be stored, about the security around it. They should do everything they can to prove that this is a very real option, that they're not only prepared but are preparing to go ahead with it, and ask Republicans if they want to join the president in saving the economy or would they rather he did it alone?

It doesn't matter much how they'd answer that, really. With or without them, disaster would be avoided.


[image source]

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