Coin collectors take notice! 31 USC § 5112(k) reads:
The Secretary [of the Treasury] 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.
Wonderful! How charming for a coin collector to have a genuine U.S. platinum coin!
Or, maybe this is a way to stave off elevating the national debt ceiling — all we have to do, according to Congressman Jerrold Nadler (D-NY), is have Secretary Geithner mint a couple of one trillion dollar platinum coins and then deposit them in the federal treasury. After all, Geithner has “discretion” to make whatever “denomination” he “prescribes,” and there is no limit to the value of the coin he can mint.
Platinum’s spot price on the commodities market today is about $1,550 per ounce. That’s a seigniorage ratio of over 645,000,000:1!
Jack Balkin was apparently serious about this in July of 2011 and TNR’s Brad Plumer thinks that the inflationary effect of $2,000,000,000,000 being added to the Treasury by fiat could be handled by the Fed simply taking a like amount of money out of circulation from that segment of the economy which I believe experts designate as M3.
I’m not an economist, and maybe you are one. You don’t think banks would respond to that by doing something precipitous like raising interest rates, do you?
More sober analysts understand that despite the unassailable argument that all currency these days is fiat money, this is a gimmick. Matt Yglesias, while conceding that it is silly, nevertheless suggests that the trick might have some rhetorical value:
I don’t think it would be a good idea for the government to be routinely financed by coin gimmicks, but it’s a much better option than the alternative of default or endless debt ceiling crises. Putting the platinum coin on the table is a good way of clarifying that whatever House Republicans say or do, default is not an option and no concessions will be made so they ought to save face and embrace the McConnell Principle.
Well, okay, if you want to say Republicans are being silly about the debt ceiling and the purported deal to not fall off the fiscal cliff is really tenuous, okay, I guess reductio ad absurdum is a valid enough rhetorical device to make that point. But the whole thing is predicated on a (probably deliberate) confusion of “currency” with “money.” If you’re going to be a goldbug, just come on out and talk about gold. Just because platinum pieces were more valuable than gold pieces in Dungeons & Dragons, that doesn’t mean it’s so in real life. In fact, it’s not — platinum’s spot price is lower than gold’s right now.
If we wanted to put two trillion fiat dollars in the Treasury, it doesn’t take the ceremonial act of minting two one-ounce coins of a metal less valuable than actual gold to do it. Two trillion dollars exists in two dimensions — first as a string of zeroes and ones in a computer somewhere in either Washington D.C. or New York City, and second as a collective belief that there is actual value of some sort that can back up those zeroes and ones. There is a limit to how far the shared agreement about fiat money possessing objective value can go, and this is beyond that point.
Still, the whole thing was worth a smile and a disgusted shake of my head this morning.
“platinum’s spot price is lower than gold’s right now.”
Which is fairly unusual and one more indication that there’s a gold bubble.
Seconded.
The goldbugs will gladly explain to you that gold is clearly not in a bubble because they personally have a huge paper gain on their gold holdings. Or something like that.
It seems to me that the real value in this proposal, which is almost certainly unworkable, but in convincing house republicans that Obama will actually do it if they refuse to raise the debt ceiling. Whether there’s any way for the President to credibly send that signal to House Republicans without sending the same signal to the markets is a more difficult problem.
Well, at some point you end up with the Treasury having zero logical options left. They don’t have money, they don’t have the authority to not pay for stuff that Congress has mandated, and they don’t have the authority to borrow. So anything they do will be wrong in some way. I can see how going whole hog crazy just to make a point would be tempting.
Still, I’d probably stick to less flamboyant workarounds like ignoring the debt ceiling. Alternately, holding up checks to important donor/contractors in carefully chosen districts would probably bring a quick end to the standoff.
Or we could do away with the concept of a debt ceiling and stop trying to legislate arithmetic. It was cute when it was all ceremony and hypocritical bluster, but now it’s just a dangerous weapon for the crazies to swing around.
Alternately, holding up checks to important donor/contractors in carefully chosen districts would probably bring a quick end to the standoff.
That makes me hope Prez. O. reads the League.
How cool would that be?
I don’t see Obama having, basically, the sheer political chutzpah to cut off payments to, say, districts that voted against raising it.
It seems far too petty, basically, and counterproductive. Nothing I’ve seen of the man says he’d shoot his own foot like that, despite the fact that it’d probably be a bit personally satisfying.
I don’t see how it would shoot him in the foot. He’s a lame duck and we’re talking about districts and congressmembers he’s not going to get support from anyway. When those road contractors have to start laying off employees, they’re going to star leaning real hard on their Reps, much as Republican CEOs are already starting to do.
The basic message would be, “You want to play hardball? I’ll show you what hardball really is.” Sure, it’s an impoundment, in contravention of the ’74 Budget and Impoundment Control Act,” but as has been noted, the Big O may be forced into a position where there are no kosher choices. And I don’t think the GOP could respond effectively. Boehner would squawk publicly and bless the Prez privately. They could impeach, bu the Senate Dems could have a quickie show trial and refuse to convict (it’s not even clear that they’d be required to try the impeachment).
I say fuck these little Tea Party jackanapes who posture and think they’re being tough by voting to avoid responsibility. They need to learn what tough is. Unfortunately that would require Obama to go against his nature. He probably still thinks he can organize the congressional community.
I don’t see how it would shoot him in the foot. He’s a lame duck.
He could do it for kicks or punt on the whole thing.
Is it still an impoundment if you’re out of money? I thought that impoundment was sitting on money that you were supposed to spend.
If that’s not the case, he can’t really avoid breaking that law at all. I mean, somebody has to get paid last. If the cash runs out before then, what is a boy to do?
T-Frog,
Good question about impoundment. I suppose the ultimate answer would be given by SCOTUS, if they chose to accept a challenge (which I suspect they wouldn’t, relying on the political questions doctrine to stay out if it).
I think it’s that you’re making an error in not treating the platinum coin gimmick as a purely accounting gimmick and instead treating it as something else.
The objections about fiat currency don’t really make sense to me here. The portion of the Federal debt held at the Fed was already purchased with made up pretend money. The Fed literally typed in some numbers on a computer and then made a transfer of those numbers to the US Treasury in exchange for T-bills. The Fed isn’t going to redeem those bills.
In essence, that portion of Federal Operating expenses were paid with brand new money, just the digital kind. That portion of the debt isn’t truly ‘real’, the Treasury would give new pretend coins to the Treasury so it could wipe out pretend debt that it has to show on the ledger because of the accounting rules the Treasury operates under.
This weird route is the potential method of choice because it’s actually within the authority granted to the Executive Branch, as the authority to issue T-Bills has been by the Congress, just in a significantly stupider way. It’s true the government could also order the printing of dollar bills, but Congress hasn’t authorized the printing of paper currency to the Treasury. If they would agree to that, they might as well just raise the statutory limit on the total value of Treasuries outstanding.
On a related note, certainly printing $100 bills also consumes a lot less than $100 of cotton and ink, which kind of mitigates any concern about the relative size of the seignorage, no? The fiat boat sailed a long time ago, and I would contend we’re very clearly much much better off for it.
Oh, I thought I was treating it as an accounting gimmick. One dressed up in goldbuggy platinum clothing, but an accounting gimmick all the same. The seigniorage is just another facet of its silliness.
And it gave me a platform to express my amazement that platinum is cheaper than gold, despite the fact that there is roughly 63 times more gold than platinum in the world (by volume, but not by weight.)
It is an accounting gimmick. It’s just that, when you’re on the end of your debt ceiling/budget rope and the choice is between default, explicitly ignoring congressional directives, and accounting gimmicks, there’s an argument for picking option c.
Well, default sure worked well for Argentina…right?
To answer your question: No, banks wouldn’t do anything precipitious like raise interest rates. Because all the platinum coin would do is effectively raise the debt ceiling.
So it would have all the effect of…raising the debt ceiling.
People have weird ideas about inflation and hyperinflation. I blame high school economics and history. It’s riveting stuff, but in all honest it’s pretty hard to actually get a good old nasty case of inflation going these days.
In this case, the platinum coin thing is simply a dodge using available legal routes to basically create the exact equvilant of borrowing whatever amount you mint the coin for. It sounds goofy, and I suspect if Obama is tempted to go the route of just waiting until the situation hits critical and then acting, he wouldn’t use the coin.
He’d probably just assert that either the debt ceiling law is unconstitutional per the 14th Amendment, or that given Congress passed two laws that conflict (the budget indicating money he must disperse and the debt ceiling law which prevents Treasury from borrowing more) that the more recent one wins, and thus Congress implicitly authorized the new borrowing.
And then dare anyone to sue him, which I’m certain the House will try and get absolutely smacked down for utter lack of standing. Meanwhile the President — no matter WHICH party he is in — has an ironclad defense: He was given two mutually conflicting orders by Congress, which he was Constitutionally bound to follow.
I was particular found of the suggestion that the debt ceiling be reworked to allow it to function as it always has, before the GOP decided to play hostage games — the President borrows money to pay for what Congress told him to spend, the minority party says things like “SPENDING IS OUT OF CONTROL” and carefully loses a vote opposing raising the ceiling, and the whole thing is a stupid bit of kabuki theater.
A particularly stupid bit, even by Congressional standards.
it’s pretty hard to actually get a good old nasty case of inflation going these days.
well…
I said hard, not impossible. Given the Fed’s control over the money supply, the ability of the US to do so isn’t exactly zero, but it would require some really sustained effort on a lot of people’s parts.
(Given, polticially, the Fed has gotten to the point where it not only acts on signs of inflations, or people worried about signs of inflations, but has actually gotten to the point where it will act if the people think that the markets might start acting like there’s gonna be inflation someday, it’d be really hard).
Offhand, you either need sustained helicopter drops of cash (and, fyi, a single infusion sufficient to pay off the entire US debt wouldn’t trigger inflation, or even weaken our currency that much. Certainly nothing like the crap from the 70s even. Now, doing it over and over? Different story) or to do something really stupid with your currency, like peg it to another currency. (Greece is suffering for many reasons, but chief among them is the fact that if they had their own currency, it would drop like a stone — which would help their problems. Instead, they’re stuck on the Euro, which is doing the opposite of what teh Greeks need their currency to do).
Absent doing deliberately stupid stuff with your currency (which even the Euro isn’t technically doing, the US does similar things all the time. Except the US has a federal economic policy, so if the US dollar’s movements happen to be screwing Alabama but booming California, money shifts around to basically bail Alabama out at California’s expense), you need something really nasty like a wage/price spiral, and the First World — in general — can see those coming a mile away.
How many times can you do a one-time infusion sufficient to pay off this type of debt without triggering inflation (or triggering fears of inflation such that the Fed wholly counteracts the policy), and how much time has to be allowed between them?
Because our real problem is not, in fact, a one-time problem.
I think the way it would likely have to be done to keep everybody from freaking out would be to issue a statement indicating that as soon as the debt ceiling issue is resolved, the Treasury will borrow the appropriate amount of money to buy the coin back and decomission it. That would make it plain that it’s a very theatrical accounting gimmick and not a total change in how we operate. Couple that with a statement saying that he would gladly sign a bill that rescind’s the Treasury’s power to play this trick as long as it also permanently eliminates the debt ceiling and it’s not a bad little package.
Push the theatrics as far as you’d like. For example, haven’t the Republicans been asking for a coin with Reagan’s portrait on it for years?
Just think of the howl of outrage when that socialist Obama decommissions a coin bearing the image of Reagan!
I wasn’t thinking so much about the retirement of the coin as issuing and using it in the first place. There’s something very elegant about working around the debt ceiling by issuing the “Ronnie.” It just seems appropriate.
Meanwhile the President — no matter WHICH party he is in — has an ironclad defense: He was given two mutually conflicting orders by Congress, which he was Constitutionally bound to follow.
Yeah, this is kind of how I see it.
“We won’t raise spending, but we already told you to spend it!”
I get upset listening to crap on the news about it. Because I hear “We need to have a conversation about spending” or “We won’t raise the debt ceiling until we cut spending” and I think “No! The time for that was when you did your budget, idiot!”
I think the media could do us all a favor by constantly bringing up that the debt ceiling is, in fact, about borrowing money to cover stuff we’ve already spent. (Of course, that would also require Congress being responsible for spending instead of acting like the President just raids the Treasury by whim).
I actually blame the President for not harping on this more.
That didn’t work out too well for HAL9000 either.
To re-iterate (or emphasize, or just make more noise or something), given that we have an existing debt of X and foreseeable interest expense of Y, and Congress voted to lay and collect taxes Z, and spend W, then Congress has already voted for a new debt limit of X+Y+W-Z, requiring a separate bill authorizing the Treasury to borrow that money is superfluous at best and unconstitutional (or extra-constitutional, perhaps) at worst.
It’s political theater of the stupidest, most toxic, sort and I hope the President has the cajones to tell the Republicans to get stuffed and refuse to negotiate a damn thing with that Sword of Damocles hanging over things.
I never realized until this week that from 1977-1995 The Gephart Rule said exactly that: every appropriation law passed with a debt provision to cover it. If tax revenues fell short of appropriations, each appropriation law individually authorized that debt be issued to cover the shortfall. Now, granted, that was just one of those party-leadership statements that happened to get followed through on for a while. But I’m not sure it could be more than that. The Congress could pass a law stating that any appropriation that’s passed implies a grant of power to the administration to issue enough T-bills to cover the spending in that budget plus debt-servicing costs, but any subsequent budget could contain language nullifying that law (just for that budget!). But they could still pass it, or… leadership could re-adopt the Gephart Rule!
No! Please don’t raise the debt limit! I oppose it! Really! Where’s my fainting couch?