I am afraid that the fix is in. I am afraid that the views of those who have claimed that this whole debt ceiling exercise is afraid will be borne out. I am afraid that we will see a bad debt-reduction bill like Reid's, the anti-Keynesian equivalent of disemboweling our economy to cure a stomachache. I am afraid we will be asked to respect and accept that resolution because the alternative is so much worse.
If it happens, everything that we will be told will be a lie. Default was not the alternative. There was one alternative that is legal, wise, quick, and effective. Congress gave the President the power to end this sort of debt ceiling hostage situation in 1996. All the President has to do is use it.
A Gordian knot has been tied around our neck and the President says that he is desperately trying to untie it. He can't untie it. But, like Alexander the Great, he can cut through it -- this time, with a sword of platinum. The concept is called Proof Platinum Coin Seigniorage, or "PPCS."
Our best hope in the next few days is to let the President know that we know this and we will not accept his turning a victory he doesn't really want into a draw that he apparently prefers, so that he is "forced" to accept a so-called compromise on spending that we don't like and that we believe damages our party.
We need to tell him that we know that he can mint a platinum coin and end this.
That sounds crazy, but it's true. Preeminent Yale Law School constitutional scholar Jack Balkin signed onto the idea last week. It's not a conspiracy theory.
It involves 31 U.S.C. § 5112(k), often read as "Section 5112(k) of Title 31 of the United States Code." I reproduce it below.
It doesn't involve the 14th Amendment, by the way. Take everything you've been hearing about the 14th Amendment and put it aside. This isn't a matter of amorphous constitutional interpretation. It's a matter of reading the clear text of a statute authorizing the minting of coins. Why does that matter? Read on.
(By the way, if it matters to you, Daily Kos has been one of the primary venues through which the people who figured this out have tried to spread this message. It's past time to listen.)
Over the past year, 24 diaries before this one have contained the key phrase "platinum coin." They have not done awfully well in readership. I'm going to try to use what influence I have, as a longtime diarist here, to get this story out. It's important enough for me to stake my reputation on it. So I'll go against my general rule and ask you in the diary text to tip, recommend, promote and share this diary. I only do that when I really think that it matters.
The Unbelievable Stupidity of the Debt Ceiling Debate
You're not going to believe what I'm about to tell you. Please bear with me. Ready?
1. The reason we face default is that we can no longer borrow money to fund our appropriations.
2. The Treasury, under the Executive Branch, is not authorized to just "print more paper money" and put it into our federal "bank account." Only Congress is authorized to do that.
3. However, the Treasury already has Congressional approval to place a metal coin -- specifically a platinum coin -- of any denomination it chooses into our federal "bank account." Once that happens, we can spend up to any amount up to the face amount of that coin. If the President wants to make the coin worth a quadrillion dollars, he can do that. It doesn't even cause inflation or currency devaluation until and unless that money in the bank is actually spent. It is just, in effect, a credit line made of metal. Our "platinum card." And Congress already approved it 15 years ago.
Really. Problem solved.
It works because we have a "fiat currency" and a law that lets the President maintain it.
Perhaps it is time to explain what "fiat currency" is
This may strike you as rather implausible. It is certainly outside of the range of your and my personal experience. I grant you that. That's because you and I do not issue a fiat currency.
As you may have heard, we are no longer on the gold standard; we haven't been for some time, in fact. Our currency, aka "the Almighty Dollar," "the Greenback," the "Sawbuck," does not represent a share of anything tangible. It represents a share of the amount of money that has been put into the economy, backed up by the "full faith and credit of the United States." That is: it is legal tender for all (existing) debts, public and private.
By unhitching our currency from gold, we expanded the opportunity for credit. We are, in a sense, fighting a similar battle to what you may have read about from the latter 19th century. The "Free Silver" movement was one to allow coinage of silver -- allowing for more credit, thus more spending, thus more demand -- rather than solely of limited gold. The limitation that credit represent a share of gold created a bottleneck allowing bankers to stanch off credit anytime they wished: hence William Jennings Bryan pledged that the country "will not be crucified upon a cross of gold."
That limitation was imposed by bankers and the law. This limitation in credit is just sheer cussedness. It is borne of fanaticism on the part of Republicans, and perhaps calculation on the part of Democrats that a public with lower (but not non-existent) expectations of government help is better politically for our party's future. (I'd prefer not to argue about that here, but whatever. See comments in Armando's diary of today for a good discussion presenting many sides.)
The thing is: the government's bank account doesn't work like your bank account. You can't take a piece of metal, write a number on it, give it to your bank, and treat it as your new credit limit, with enough money stored in the account to cover it. The government can. The hundreds of times that the government has raised the credit limit over that past decade, that's what it has done -- except that is has used legislation rather than metal.
Legislation is the province of Congress. Metal is the province of the Executive Branch. This whole fraudulent crisis comes down to "this machine doesn't take paper; do you have coins?"
Yes, as a matter of fact, we do have coins. Or we can, at least, any time we want them. Platinum coins.
Any time he wants, The President can direct the Secretary of the Treasury to expand our national credit limit by dropping a platinum coin in the slot, because we say he can. Just like your credit limit, it doesn't mean that we have to spend it. If you don't want to spend it, don't make the purchases.
We have "fiat currency." It's valuable because we say it is. That matters.
The text of 31 U.S.C. § 5112(k) (and friends)
Because presenting you simply with § 5112(k) would probably not be convincing, I present you with some other (illustrative but irrelevant) subsections as well, so that you can get a sense of what it is doing overall.
§ 5112. Denominations, specifications, and design of coins
How Current is This?
(a) The Secretary of the Treasury may mint and issue only the following coins:
(1) a dollar coin that is 1.043 inches in diameter.
(2) a half dollar coin that is 1.205 inches in diameter and weighs 11.34 grams.
(3) a quarter dollar coin that is 0.955 inch in diameter and weighs 5.67 grams.
(4) a dime coin that is 0.705 inch in diameter and weighs 2.268 grams.
(5) a 5-cent coin that is 0.835 inch in diameter and weighs 5 grams.
(6) except as provided under subsection (c) of this section, a one-cent coin that is 0.75 inch in diameter and weighs 3.11 grams.
(7) A fifty dollar gold coin that is 32.7 millimeters in diameter, weighs 33.931 grams, and contains one troy ounce of fine gold.
(8) A twenty-five dollar gold coin that is 27.0 millimeters in diameter, weighs 16.966 grams, and contains one-half troy ounce of fine gold.
(9) A ten dollar gold coin that is 22.0 millimeters in diameter, weighs 8.483 grams, and contains one-fourth troy ounce of fine gold.
(10) A five dollar gold coin that is 16.5 millimeters in diameter, weighs 3.393 grams, and contains one-tenth troy ounce of fine gold.
(11) A $50 gold coin that is of an appropriate size and thickness, as determined by the Secretary, weighs 1 ounce, and contains 99.99 percent pure gold.
(b) The half dollar, quarter dollar, and dime coins are clad coins with 3 layers of metal. The 2 identical outer layers are an alloy of 75 percent copper and 25 percent nickel. The inner layer is copper. The outer layers are metallurgically bonded to the inner layer and weigh at least 30 percent of the weight of the coin. The dollar coin shall be golden in color, have a distinctive edge, have tactile and visual features that make the denomination of the coin readily discernible, be minted and fabricated in the United States, and have similar metallic, anti-counterfeiting properties as United States coinage in circulation on the date of enactment of the United States $1 Coin Act of 1997. The 5-cent coin is an alloy of 75 percent copper and 25 percent nickel. In minting 5-cent coins, the Secretary shall use bars that vary not more than 2.5 percent from the percent of nickel required. Except as provided under subsection (c) of this section, the one-cent coin is an alloy of 95 percent copper and 5 percent zinc. In minting gold coins, the Secretary shall use alloys that vary not more than 0.1 percent from the percent of gold required. The specifications for alloys are by weight.
(e) Notwithstanding any other provision of law, the Secretary shall mint and issue, in quantities sufficient to meet public demand, coins which—
(1) are 40.6 millimeters in diameter and weigh 31.103 grams;
(2) contain .999 fine silver;
(3) have a design—
(A) symbolic of Liberty on the obverse side; and
(B) of an eagle on the reverse side;
(4) have inscriptions of the year of minting or issuance, and the words “Liberty”, “In God We Trust”, “United States of America”, “1 Oz. Fine Silver”, “E Pluribus Unum”, and “One Dollar”; and
(5) have reeded edges.
(k) The Secretary 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.
The people that have tried to publicize this
The people who have tried to publicize the viability of "Jumbo Coin Seigniorage" (the previous term they used for PPCS) deserve enormous thanks. They've been dogged and lonely and the story never really got traction until Prof. Balkin gave it his blessing. On this site, the person who has done the most to get this story out is Letsgetitdone. You might want to drop him a line of thanks; he's certainly earned it.
Over the past year, 24 diaries have contained the key term "platinum coin." (Other searches might unearth more on topic.) As you'll see -- for the uninitiated, the numbers on the right of the date represent numbers of comments, recommendations, and hotlistings -- they've gotten a mosty quiet reception thus far. I've linked a few; you can find the rest from the search linked above.
The 14th Amendment and the Problem(s) ProgressiveMan 07/29/2011 12 4 -
Senate Democrats gaming out debt ceiling process post-House vote Joan McCarter 07/29/2011 26 18 -
What If a Debt Limit Extension is Voted Down? Letsgetitdone 07/29/2011 22 29 2
Two One Trillion Dollar Coins durrati 07/28/2011 42 4 -
The President's Address on the Debt Ceiling: An Exercise in Fantasy Letsgetitdone 07/27/2011 21 10 2
Unilateral Action and the 27th Amendment. Yes, the 27th. Seneca Doane 07/26/2011 72 32 1
What's Wrong With You? An Open Letter to Congressional Dems and the President Letsgetitdone 07/26/2011 15 13 1
Beyond the Debt Ceiling: The $30 Trillion Plan for Ending Borrowing and the National Debt Letsgetitdone 07/21/2011 33 6 1
Dear Representative James P. McGovern selise 07/21/2011 6 5 1
Gang of 6 Plan: Swapping Magic for Vaudeville accumbens 07/20/2011 2 1 -
Coin Seigniorage: A Legal Alternative and Maybe the President's Duty Letsgetitdone 07/19/2011 9 11 2
Duh! When We Run Out Of Money, We Can Mint Some More wigwam 07/14/2011 17 6 -
Coin Seigniorage, the Debt Limit, and the President's Duty Letsgetitdone 07/11/2011 31 3 1
The Debt Ceiling Is Not Unconstitutional, Right Now! Letsgetitdone 06/30/2011 56 13 2
How to Knock Two-Trillion Dollars Off the National Debt, Ending the Debt-Limit Crisis wigwam 06/27/2011 40 5 1
How to Save Social Security and Medicare from the GOP wigwam 06/22/2011 23 2 -
Spare Me the “Middle Ground” Please! Letsgetitdone 06/10/2011 16 6 1
President Obama: Stop Breaking the Law; Use Coin Seigniorage Letsgetitdone 05/19/2011 52 4 1
Gallup Scores Another for the Plutocracy Letsgetitdone 05/13/2011 15 12 1
Brinksmanship On the Debt Ceiling Letsgetitdone 05/12/2011 54 7 3
Use Coin Seigniorage Now! Letsgetitdone 04/06/2011 10 8 1
President Obama Should Use Coin Seigniorage Now! Letsgetitdone 01/19/2011 55 6 1
Fairy Tales of the Coming State of the Union: Our Grandchildren Must Repay National Debt Letsgetitdone 01/12/2011 31 2 1
Will He Say He Has No Choice or Will He Use Seigniorage? Letsgetitdone 01/05/2011 62 17 3
I conclude with an exchange in comments between me and Letsgetitdone
from July 5-6, which shows what my thinking was at a time that I thought he was very possibly a crank.
Actually, (1+ / 0-)
The Treasury is currently limited by law in the amount of printing it can do. It certainly can't print enough to obviate the need for borrowing. However, jumbo coin seigniorage is different. Congress granted the power to the Mint to make platinum coins of arbitrary face value during the 1990s. These coins are legal tender, and they can be given huge face values if the Executive so desires. For example a $2 Trillion coin could be minted and deposited in the Mint's Fed Reserve account. That coin is legal tender; therefore the Fed must credit the mint's account. The cost of the coin might be $3,000 leaving the mint a nearly $2T profit. By law, the Treasury may periodically sweep the Mint's account for any seigniorage profits in it; transferring those profits ti the Treasury General (TGA); obviating the need for borrowing. This is explained in previous posts on this topic. details and other links are here.
by Letsgetitdone on Tue Jul 05, 2011 at 04:00:25 PM PDT
Can you get one legislator to agree with you? (0+ / 0-)
You and beowulf (who I think is not you, right?) have been promoting the hell out of this for more than half a year. I'd like to hear it from someone in a responsible position who is not pseudonymous. No offense intended.
by Seneca Doane on Tue Jul 05, 2011 at 09:42:14 PM PDT
beowulf isn't me (1+ / 0-)
My name's Joe Firestone and my short bio is here. As for legislators, not a single one has to agree with me. Congress has already passed legislation authorizing jumbo coin seigniorage. The relevant section of the US code is here.
Also, now there are at least 4 people promoting this: Mahilena, wigwam, beowulf, and myself. The idea was originally beowulf's. I added a wrinkle or two, and wigwam put in a nice twist here.
by Letsgetitdone on Wed Jul 06, 2011 at 09:25:54 AM PDT
How shocked would you be if there were some (0+ / 0-)
other applicable statute or other consequence that you haven't realized that would make this a bad idea in practice? I wouldn't be shocked -- and I'd like to know before becoming a fifth identifiable person who supports it.
I don't defer to experts entirely, but when it comes to figuring out why the Great Idea That No One Has Ever Before Thought Of Doing ("GITNOHEBTOD") hasn't been done before, experts can be very helpful -- and politicians have ready access to them.
This could be an important idea but from my perspective it's not fully baked -- or at least not yet fully vetted.
by Seneca Doane on Wed Jul 06, 2011 at 10:46:55 AM PDT
And so I checked. And, evidently, Prof. Balkin checked as well. Perhaps there is another statute -- but if so, I can't find it. It's like we're receiving in the mail an envelope with a key that lets us out of this prison -- or, more to the point -- a platinum sword that lets us cut this Gordian knot. I could be wrong about this -- but I could also be right. This is the legal and constitutional way
to end this supposed crisis without suffering.
If what I say up there reminds you of what you're thinking now, then I hope that you'll think about this deeply -- but not for too long, because time is of the essence.
If we spread the word right now, President Obama may have to admit that he can issue platinum coins -- and that ends the crisis. (It arises again with the next fiscal year's budget -- but we can prepare for that one.
If we don't, he won't -- and the crisis probably turns out badly, whether that means default or a bad law that we don't need and don't want.
Which will we do? It's up to us. Whatever happens, happens this weekend.
(Spread the word.)
2:16 PM PT: Thanks to dance you monster for noting that The Economist is (more or less) on board!
3:05 PM PT: For those of you who don't know the story of Alexander the Great and the Gordian Knot, it's worth knowing. The term is defined as "an intractable problem solved by a bold stroke," and the Wikipedia crowd fittingly quote Shakespeare:
"Turn him to any cause of policy,
The Gordian Knot of it he will unloose,
Familiar as his garter" (Shakespeare, Henry V, Act 1 Scene 1. 45–47)
3:09 PM PT: Go tip Letsgetitdone, who just checked in with updates on events here.
[T]he Platinum coin idea has now gone viral over the web now and that everyone is mentioning it. They don't really understand it yet; don't understand its variations, and also tend to immediately react with "crazy, but maybe necessary," and "perhaps, inflationary."
But still a discussion has started in earnest now. PK picked it up yesterday, and Brad Delong, and Matty Yglesias have now begun to support its use. Jack Balkin's piece at CNN really broke things wide open, and it even hit Ezra Klein's site at WaPo.
A friend of mine Scott Fullwiler is in process of finishing a piece that will systematically tear the inflation fear. PPCS revenue can be used for four kinds of spending
1) spending to pay off debt held by the Fed;
2) spending to pay off Treasury debt held by other Federal agencies such as SS;
3) spending to pay off debt held by domestic parties or foreign Governments; and
4) spending to pay for Congressional Appropriations not matched by tax or other Federal revenues.
Scott's new piece will show that PPCS won't cause inflation in each of these areas of spending.
3:55 PM PT: Letsgetitdone offers some corrections on the credit line analogy. (Also in his other comments.)