By now I'm sure you’ve probably heard more than you want to know about the platinum coin—although if you like learning fancy new words, you have to admit, “seignorage” is a pretty cool one.
But I want to take a few minutes to explain why I think minting a $1 trillion quarter and then having the Treasury secretary pretend to yank it out of Ben Bernanke’s ear is not such a good idea—and might be a really stupid one politically.
(Continue reading below the fold.)
It’s not because I worry about the legality of the trick. Larry Tribe’s word is good enough for me, and besides, fear of breaking the law is about the worst possible reason for opposing a good debt limit fix, since if and when the limit is breached, a whole bunch of laws are going to be broken—one way or another.
It’s also not because I think it would spook the financial markets. Again, if the debt limit is broken, and the true value of the single most important piece of electronic paper in the world—the 90-day Treasury Bill—becomes a topic for debate, the financial markets aren’t going to be spooked, they’re going to be slumped over their trading desks suffering massive coronaries.
I’m against the coin because I think it’s a bad idea politically, and the main point to understand about the debt ceiling is that it is a political issue, not a legal or even a financial one.
This has been true ever since the GOP revolutionaries of ’95 first tried—but failed—to use the debt threat to force draconian spending cuts on Bill Clinton.
(An interesting historical fact: The debt ceiling law was originally passed during World War I to make it easier, not harder, for the Treasury to borrow money, since prior to that time Congress had the power to force a separate vote on each and every federal bond issued.)
Why would minting the coin be a political blunder of the first order? Two reasons:
- It would give the Republicans an easy out from the trap they have set for themselves by threatening to take the U.S. financial markets and economy hostage.
- It would change the subject from the threat of a financial meltdown to the methods the POTUS has taken to prevent that meltdown.
The belief that the debt ceiling threat is actually another self-inflicted debacle in the making for the GOP is not universally held, of course.
Indeed, up until the last few weeks conventional wisdom (oxymoron alert) held that since the Republicans really were bat shit crazy—or were themselves being held hostage by their batshit crazy teabagger wing—the GOP held the upper hand, i.e. “they really might do it!”
I’ve always been skeptical of that argument, which might be because I covered the original 1995 debt showdown, in which the GOP House—revolutionary zeal notwithstanding—caved pretty quickly under the triple pressure of Wall Street, Main Street, and the more establishmentarian GOP Senate.
The truth is that the debt ceiling isn’t just a Weapon of Mass Destruction—it’s a Weapon of Mutually Assured Destruction. That being the case, the idea of the Republicans taking the entire U.S. creditor class hostage has always reminded me of the scene from Blazing Saddles where the black sheriff—facing a rural lynch mob in the making—takes himself hostage and threatens to blow his own head off:
First townfolk guy: Hold it, men. He's not bluffing.
Second townfolk guy: Listen to him, men. He's just crazy enough to do it!
You may recall that the ruse only worked because the townsfolk were, to quote Gene Wilder’s character, “simple farmers, people of the land, the common clay of the New West . . . You know: morons.” So it’s easy to see how the standard Beltway pundit would be similarly impressed by the GOP’s bluster.
But sharper media minds, like Greg Sargent over at the Plum Line, also have started to question whether the debt hostage gives the Republicans any kind of leverage they can actually use:
GOP leaders well know that if they [trigger the debt bomb] the entire business community will join with Obama and Democrats to tell them to back off or take the blame for cratering the economy, leaving Republicans further isolated.
And sure enough, GOP leaders of late haven’t exactly been acting like (to mix movie metaphors) Al Pacino in Dog Day Afternoon, screaming
“Attica! Attica!” out the front door of the bank.
When you hear John Boehner talking about a “rolling” series of monthly debt ceiling hikes (we can only imagine how thrilled his caucus was to hear that that they might be asked to take those votes) it suggests someone has already blinked, and that someone isn’t the president of the United States.
More importantly, the outcome of the first fiscal cliff battle—sent to the floor by Boehner in flagrant disregard of the “Hastert Rule”—demolishes the argument (one I was for a time inclined to share) that the teabaggers can veto any deal that doesn't amount to an abject Obama surrender. That doomsday device has been tested, and found wanting. Which means a road to compromise is open, if not exactly wide open.
Even worse (from Karl Rove’s point of view), the spectacular failure of Boehner’s “Plan B” in the tax fight suggests the GOP has very little room for tactical maneuvering—such as having the House pass a debt limit extension paired with deep spending cuts, and then sending to the Senate (and the White House) as a take-it-or-leave it offer.
Some of the teabaggers (those not committed to oppose any debt ceiling increase upon pain of death—or loss of primary) might go for such a gambit, but the average Republican almost certainly wouldn’t, not without some Democratic votes as cover.
All of which leaves the Republicans out at the end of a very long limb, swaying in a very high breeze. Are they really going to use the threat of financial Armageddon to demand a ransom consisting entirely of whopping huge cuts in Medicare and Social Security—cuts even their own base fiercely opposes?
The platinum coin would give the GOP way too easy a path to climb back down off that branch they’re perched on. In fact it pretty much offers them a free ride in a cherry picker.
If Obama mints the coin, the Republicans can instantly switch (they’re incredibly good at this) from threatening financial chaos to ferociously demagoguing the prevention of that chaos—in a way that the 99.9 percent of the American people who aren’t constitutional lawyers or financial economists can easily understand.
We’ve already gotten a pretty good taste of their material: Like the National Republican Congressional Committee’s brilliant argument that the weight of a $1 trillion coin would sink the Titanic.
I said brilliant and I meant it. As a monetary concept, the idea that a $1 trillion coin has to contain $1 trillion worth of precious metal may be so freaking stupid it makes Glenn Beck look like Milton Friedman. But, as a political talking point for the cable news viewing masses—the teabagger masses in particular—it’s right on target: simple, intuitively obvious, and hard to refute without using words like “seignorage.” It even comes with its own funny graphic.
Also, while the sink-the-Titanic argument may be a lie, it is a lie with “mythic truth” behind it: Minting a $1 trillion coin is an extreme solution, one that bends the law, if not to the breaking point, then at least to the point of absurdity. The political consultant hasn’t been born yet who couldn’t spin gold—maybe even platinum—out of that one.
For the GOP, the coin would be a political Godsend: No more having to make good on insane threats, or defend that insanity in the 2014 elections—or even explain and justify a craven retreat to their teabagger base. Instead, almost infinite opportunities to attack a president bent on subverting the U.S. Constitution in order to go on running up huge amounts of public debt, blah blah blah.
For the GOP electoral machine, what’s not to like?
None of this would matter if the coin really was the only way out of an economic catastrophe. Desperate times call for desperate measures, and there’s always the risk that the House GOP leadership will refuse to flout the Hastert Rule a second time, reactivating the teabagger Doomsday Device.
As Krugman puts it, if the choice is between a financial collapse that makes 2008 look like the failure of a neighborhood lemonade stand, and having the Treasury secretary put on a clown suit for a few minutes, who wouldn’t choose the clown suit?
But a clown outfit isn’t necessary—as much as one might suit Tim Geithner. If the ultimate push came to the ultimate shove, and the debt ceiling were in imminent danger of being breeched, Obama wouldn’t have to mint a coin. He wouldn’t even have to twist the meaning of the 14th Amendment to cover a federal, as opposed to a state, debt repudiation.
All the POTUS would have to do is call a press conference to announce that, after careful deliberation with his attorneys, he has decided that his inaugural oath to ensure the laws are faithfully executed requires him to ignore the debt ceiling, in order not to violate the more numerous laws duly passed by Congress that appropriate funds, award benefits, and mandate timely payment to federal creditors.
Sure, it’s a Star Trek argument (“the needs of the many outweigh the needs of the one”) but what exactly would the Republicans do about it? Take the POTUS to court?
Someone (Larry Klayman and Justice Watch, if no one else) almost certainly would sue, no matter what solution Obama chose—the $1 trillion coin included. And while Larry Tribe’s word is good enough for me, it might not be good enough for the conservative majority on the Supreme Court.
That being the case, if a court showdown is inevitable either way, why not put the POTUS on the strongest political ground possible?
To me, arguing that the POTUS is upholding the law as best he can in an impossible situation seems a better alternative to getting cute with the coinage laws. It is, after all, exactly the same argument used by Abraham Lincoln in the early months of the Civil War, after he usurped the congressional power to suspend habeas corpus:
Are all the laws but one to go unexecuted, and the government itself . . . to go to pieces, lest that one be violated?”
During the post-9/11 hysteria, and again during the Iraq War, conservatives
were pleased to quote Lincoln ad nauseam to justify the Bush Administration’s innovative interpretations of both the Patriot Act and the Authorization of Military Force Resolution.
We can assume they would not be so enthusiastic to see the same thoughts re-expressed in the present crisis. But we can also hope the voters—who already favor Obama in this fight—would understand and accept its basic justice (not to mention sanity).
At a time when even political uber-pundit and closet reactionary Charlie Cook understands that the GOP is way behind the eight ball (“Republicans . . . have to proceed with great caution.”) it seems to me the administration can afford, just this once, to take a stand on principle.
When it comes to how the Supreme Court might actually rule on a claim of presidential emergency power to pay the debt, I have to plead legal incompetence—although my perception is that the court generally has been reluctant to be the referee when the legislative and executive branches go at it over their respective constitutional powers (see: War Powers Act).
Maybe such considerations no longer restrain justices who claim to believe in judicial restraint. I don’t know. But the hard, cynical fact is that court review—much less a ruling—almost certainly would come too late to save the Republicans from a humiliating political defeat (although the same would also be true with the coin, for that matter).
Who knows? There is also the upside possibility that the court would rule for the executive in such a case, taking the debt ceiling off the negotiating table for all time. Do any erstwhile plaintiffs (nuts like Klayman excepted) really want to risk that?
The final point of debate, I suppose, is the effect on the markets of an assertion of presidential emergency power versus the coin. Another imponderable, as Ezra Klein reports. But I personally find it hard to believe that minting a $1 trillion coin (which sounds like something Zimbabwe would do) would be more reassuring to financial traders than a solemn presidential declaration, posthumously endorsed by Abraham Lincoln.
There’s not really much point in asking questions that nobody can answer. But there’s also not much point, at least in my opinion, in fooling around with platinum coins when a much more direct, compelling, and equally effective solution is available.
On the other hand, who would break the bad news to the American Numismatic Association?
Update 1/12 12:15 AM ET: Something that just struck me about these debt limit scenarios: Any workaround of a congressional failure to raise the debt ceiling is going to depend entirely on the cooperation of the Federal Reserve.
If it's the platinum coin, the Fed (Fed of New York) would have to accept and credit it to the Treasury's account -- not dispute its legality and force the Treasury to go to court.
If it's a 14th Amendment claim or an assertion of inherent executive power, the Fed's role would be a little different, but still crucial. By law, the Fed cannot buy federal debt directly from the Treasury. (It used to do that long ago, but the authority was allowed to lapse in 1981.)
To sell debt publicly, the Treasury would need the participation of the "primary dealers" -- the big Wall Street and foreign banks licensed to bid at Treasury auctions. No bids from primary dealers (or insufficient bids to fully cover the debt at auction) would basically shut the market down. We, or at least Wall Street, would be back in heart attack mode.
My guess (and that's all it is) is that primary dealers would be unwilling to bid -- or would demand truly userious, Greek-style discounts -- unless the Fed was clearly on board with the presidential program. It would probably signal that stance by communicating a willingness to purchase or re-discount (lend against) bonds issued under disputed authority.
Needless to say, this is hardly a position the Fed wants to be in. While the GOP leadership might secretly be relieved, the central bank would be far too attractive a political pinata for them not to take a bat to it. The teabaggers and Paultards, of course, would go completely bonkers -- or more bonkers, if such a thing is possible.
Result: Lots of hearings, lots more talk about a Fed "audit," lots more bashing of the Fed's QE (quantitative easing) policies -- now directly tied to the fiscal dispute.
At this point, Ben Bernanke needs all that like he needs an ice pick to the brain. In fact he might, if given his choice, take the ice pick. I can already hear him: "A year from fucking retirement, and I gotta deal with THIS?"
The historical overtones are also interesting: To my knowledge, it would be the only time in the Fed's history it has been dragged smack into the middle of a constitutional crisis. But the same can hardly be said for its distant ancestor: the Second Bank of the United States, which got into a ferocious fight with the seventh president of the United States, Andrew Jackson.
The bank (and its congressional supporters, many of them bought and paid for, Lincoln style) lost that fight, and the bank lost its charter, and thus its life. This cleared the way for an 80-year experiment in free state banking that is judged, by most monetary historians, to have been a colossal failure -- but of course don't try telling that to Ron Paul.
I'm guessing the Fed would emerge in better shape from a debt limit showdown -- assuming it aligned itself with, instead of against, the eventual winner, which in this case again looks like it will be the executive branch.
But you never know.