The viability of the Platinum coin option depending on the Treasury Department deciding that it was a legitimate statutory interpretation. A Treasury spokesperson has announced that they're deciding otherwise.
“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” Anthony Coley, a Treasury Department spokesman said
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The article quotes Ezra Klein:
For the platinum coin idea to work, the Federal Reserve would have to treat it as a legal way for the Treasury Department to create currency. If they don’t believe it’s legal and would not credit the Treasury Department’s deposit, the platinum coin would be worthless.
Says Politico:
“The President and the American people won’t tolerate Congressional Republicans holding the American economy hostage again simply so they can force disastrous cuts to Medicare and other programs the middle class depend on while protecting the wealthy,” White House spokesman Jay Carney said in a statement. “Congress needs to do its job.”
Says
The Economist, giving three reasons for the decision:
The first is that it's probably not legal for the Federal Reserve to facilitate such a transaction for the purpose of financing the government. The second is that even if it were legal, it would seriously hurt the reputation and credibility of the Fed, fueling accusations it had subordinated monetary policy to fiscal policy. … The third and most important is that it lets Congress evade its responsibility for dealing with the debt ceiling.
Analysis after the jump.
Idiots, cowards, or knaves? Hard to say. I include "knaves" because this strengthens the hand of those who want to be able to look forlornly at Democrats a couple of months from now and tell us that there was no alternative to a deal that cuts Social Security and/or Medicare and/or Medicaid and/or something else that will make us gasp. Lots of people have predicted that here; many of us have thought that they were possibly, probably, or even certainly being too cynical. Now we will see.
If we see these cuts, they will not be because there was no alternative. It will be because they chose to ignore it. Some, including smart people like billmon in his front page post yesterday, this that it's a bad idea for prudential political reasons, including that somehow this allows us to make the Republicans repeat their "government shutdown" mistakes of late 1995 and early 1996. Yeah, well we'll see if Obama blinks and gets his so called "grand bargain." I'm surprised to have less faith in Obama than the esteemed billmon does, but there we are.
Of the Economist's three reasons, the first -- that it's probably not legal for the Fed to participate in this -- is simply wrong. It's convenient (and necessary, and sufficient) if you want to spike the idea, but as many attorneys who deal with statutory interpretation for a living will attest -- this really isn't a close call. If Treasury said that it was OK, it would be considered OK. If it said no -- as it at least unofficially has -- it would be considered not-OK. The notion that, as you'll read in the article, the PRIVATE Federal Reserve System would have had any say in determining the statutory meaning is stunning and scandalous. But, of course, this decision isn't being made on the basis of law, but of politics. Now we'll find out whether it's good politics or bad politics.
The other two reasons are not legal, but prudential. It would hurt the reputation of the Fed? Have these people read a newspaper in the past five years? It let's Congress evade its responsibility? Bullshite -- their responsibility comes at the Appropriations stage, and they've exercised it.
I haven't wanted to believe that the fix is in. I continue to hope that the fix is not in. But if I had to bet at this moment, it would be that the fix is in -- and that this most significant obstacle to major cuts in social services as part of a compromise surrender to the rich and comfortable will be seen as the moment that the game was fixed. The louder that people protest, the more it seems like they were rooting for that result.
If Obama doesn't come through the debt ceiling conflict without entitlement cuts, it's entirely on his head now. He could have legally used the platinum coin. He chose otherwise.