I said that you don't force the Fed and the executive to behave unprofessionally as a solution to an unprofessional Congress: you make the Congress act professionally.
Kevin Drum puts it this way: "Fighting banana republic with more banana republic is far more dangerous than coin supporters think. It's one thing for Republicans to go crazy. It's another for craziness to essentially become institutionalized. When liberals stop fighting this kind of stuff, we really are on our way to banana republic-hood."
Exactly. Look, economists like unconventional answers. I've had as much fun as the next guy reading about this and thinking through it. It had a fun run as a goofy blogger solution. But this is the real world.
The president cannot default on the debt. It's unconstitutional. He also has to collect the revenue and spend the money that Congress orders him to. And Congress cannot rewrite the laws of arithmetic.
The Congress has the authority to borrow. Tell me where the Congress has the authority to pass a law that prevents the executive from executing other laws that it passes.
Ignore the debt ceiling. Call their bluff.
Of course that will be disruptive and cause a rucus. But at least it will be an end to these ad hoc solutions and crazy grandstanding. Just spend the money Congress ordered you to spend and collect the taxes Congress ordere you to collect.
Sunday, January 13, 2013
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I agree this isn't the reason to mint the coin, but I do believe there is reason, and that is to collectively deleverage after hitting the lower bound. While not materially different at the zero bound, minting would establish firmer future commitment while reducing the fear debt creates.
ReplyDeleteReducing the fear that debt creates is very important politically. If coinage had been used in the initial response to the financial crisis, the debt/deficit hawks would never have been able to frighten the public and the Tea Party would never have come into being. Obama would never have told CSPAN that we are out of money, and the Simpson-Bowles commission would never have been created.
DeleteBanana Republic, bah! The main characteristic of a banana republic is plutocracy. Austerity is a tool of the plutocracy to maintain its relative advantage, and coinage is a way to attack austerity.
I'm afraid we'll both be disappointed, Daniel. From what I've read, the platinum and 14th amendment options are both "off the table". So that implies that president Obama will choose to disobey the spending bills and go for some kind of government shutdown. Maybe there are other possibilities.
ReplyDeleteMaybe this decision boils down to politics. Defusing the situation by PCS or 14th amendment will be widely seen as negatives, or power grabs for Obama and Democrats in general. Maybe that would cost a few house or senate seats in 2014. Being 'forced' to shut down the government and making brutal, and perhaps arbitrary cuts to programs will make some republicans look like ideological nutters. Either they back down from their position, and Obama 'wins', or they go over the edge and seem to have caused the crisis and perhaps a return to recession.
I guess we'll see
Minting the coin would let the epublicans off the hook.
ReplyDeleteI think you will find that a lot of government spending is not actually mandated. There is likely to be nothing that sets the size of the FBI or that direts that the airforce and the Navy must have fuel. If the Administration stops all payments that are not specifically ordered by law we could have a fine mess.
There was a suggestion that the Republicans are going to introduce legislation specifying the priority of payment. That would provide some useful clarity.
I think you will find that a lot of government spending is not actually mandated."
ReplyDeleteI don't think so.
Impoundment is the decision of a President of the United States not to spend money that has been appropriated by the U.S. Congress. The precedent for presidential impoundment was first set by Thomas Jefferson in 1801. The power was available to all presidents up to and including Richard Nixon, and was regarded as a power inherent to the office. The Congressional Budget and Impoundment Control Act of 1974 was passed in response to perceived abuse of the power under President Nixon. Title X of the act, and its interpretation under Train v. City of New York, essentially removed the power. This severely inhibited a president's ability to reject congressionally-approved spending.[1]
The Impoundment Control Act of 1974 provides that the president may propose rescission of specific funds, but that rescission must be approved by both the House of Representatives and Senate within 45 days. In effect, this has removed the impoundment power, since Congress is not required to vote on the rescission and has ignored the vast majority of presidential requests.[2]
http://en.wikipedia.org/wiki/Impoundment_of_appropriated_funds
There was a suggestion that the Republicans are going to introduce legislation specifying the priority of payment. That would provide some useful clarity.
If it passed both houses with a veto proof majority, sure.
I take your point which is that on the one hand Congress has passed bills which will require spending and on the other hand they are refusing to authorize the borrowing necessary to pay the bills. So far they are trying to say that it is Obama's responsibility to "square the circle" for them.
DeleteI think there may be a difference between mandated (ordered) and approved (permitted). Further, I understand that there is a "continuing resolution" authorizing spending and that it runs out the end of March.
As to the Republican proposal to set out the priorities - I think it would be a useful exercise and provide useful guidance even if it does not pass the Senate or get Presidential approval. Absent such a piece of legislation, maybe Obama should just stop sending any money to Republican districts.
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DeleteDaniel, not that I am a legal scholar, but hey that doesn't stop most people... I don't think the Constitutional forbids a debt default. I think that was just clarifying which debts were legitimately part of the US federal government after the Civil War, since there would be some understandable confusion (Confederate debts? etc).
ReplyDeleteSo if they defaulted, they would be saying, "As the Constitution says, this is our valid debt. And we're reneging on it." That's what you do in a default. If I stop paying my mortgage, I'm not going to argue I never signed the document.
IIUC, one of the first laws passed by the first Congress was to make payment of the debts of the U. S. and the service on its debts top priority. That was done to reassure foreign creditors of the U. S. That is one reason that the U. S. has never defaulted. In context, the 14th amendment strengthened that legislation.
DeleteThe coin is an end run around the law. It's a clever and funny one, but (cf Murphy, Robert P.) clever and funny can still be wrong.
ReplyDeleteBut the other options are neither clever, nor funny. So where does that leave us?
DeleteBut the other options are neither clever, nor funny, nor legal. So where does that leave us?
Deleteedit
Coinage is a way of following the law, not an end run around it.
DeleteFearful that the truth might ever come out, desperate Banana Republicans make sure that nobody in law schools is allowed to even breathe a word that the Constitutional dollar is a coin containing 371.25 grains (troy) of fine silver.
ReplyDeletehttp://www.fame.org/HTM/Vieira_Edwin_What_is_a_Dollar_EV-002.HTM
University of Chicago law professor Eric Posner, son of Judge Posner, suggests that the platinum coin might be found illegal using present day legal analysis (which precludes analysis employing the actual meaning of the Constitution which is, well, just so gauche). The language of statutes is often interpreted by courts using statements that make up the legislative history of those statutes. The clear purpose of the statute was clearly to provide authority to the mint to strike COMMEMORATIVE platinum coins and sell them at their bullion value plus “a reasonable profit”. Further, why else was the mint instructed to use platinum which has substantial market value? The coins could have otherwise made out of tin cans and plastic refuse.
http://www.slate.com/articles/news_and_politics/view_from_chicago/2013/01/the_platinum_coin_poses_a_risk_of_impeachment_for_president_obama.single.html
So Obama has for now nixed the idea of using the "trillion dollar platinum coin". My opinion is that this option was not used because the coin idea is SELF EVIDENTLY PREPOSTEROUS and even brain dead average Americans can see that. The current money dilution schemes like the Fed buying treasury bonds appears obscure, mysterious and incomprehensible to average people which is how the powers-that-be like it. Not so the coin.
Jon Stewart mocked the idea of the platinum coin. I doubt that he has mocked the purchase of treasuries by the Fed for laughs. This caused Krugman to go berserk:
"Above all, however, what went wrong here is a lack of professionalism on the part of Stewart and his staff. Yes, it’s a comedy show — but the jokes are supposed to be (and usually are) knowing jokes, which are funny and powerful precisely because the Daily Show people have done their homework and understand the real issues better than the alleged leaders spouting nonsense. IN THIS CASE, HOWEVER, IT’S OBVIOUS THAT NOBODY AT TDS SPENT EVEN A FEW MINUTES RESEARCHING THE TOPIC. IT WAS JUST YUK-YUK-YUK THEY’RE TALKING ABOUT A TRILLION-DOLLAR CON HAHAHA.
Hey, if we want this kind of intellectual laziness, we can just tune in to Fox.
Update: Some people are asking why I don’t go on TDS to explain. Um, first I have to be invited — which hasn’t happened since, I think, 2005."
http://krugman.blogs.nytimes.com/2013/01/12/lazy-jon-stewart/
Another NYT writer noted "A Trillion-Dollar Coin Brings a Jackpot of Jests"
http://www.nytimes.com/2013/01/10/business/a-trillion-dollar-coin-brings-a-jackpot-of-jests.html?src=recg
I’m laughing. Our criminally insane monetary system is supposed to appear obscure, mysterious and incomprehensible to average people. And BORING! The platinum coin might be the savior we've been praying for.
Not all of the federal budget is "debt" and payments can be prioritized to avoid default by paying only "debt" in the short run without new borrowing. Social security is not "debt" and Congress could abolish it tomorrow.
ReplyDeleteI don't understand how the 14th amendment option is any less of a banana-republic solution. Congress said that some money shall be spent but Congress also said that not more than X shall be borrowed. For the executive to borrow money when Congress has not allowed it to do so would be just as much a "banana republic" move. It's not as though the laws that mandate spending are on a higher legal plane than the debt ceiling.
ReplyDeleteBob Wenzel explains the reasonableness of the debt ceiling despite prior spending authorization from Congress:
ReplyDeleteYes, Congress did earlier approve current spending levels, but that could have been based on revenue projections that have not lived up to projections. Or it could have been based on spending that was not expected to reach current levels so fast. Or both.
In other words, the requirement that Congress approve an increase in the debt levels is not a superfluous activity, as the President suggests, but a built in check, a speed bump, if you will, to see if previous approved spending levels should continue, given that we can now see how such spending is impacting the national debt ceiling.
Again, I don't expect the current Congress to do more than act out a little drama before raising the debt ceiling, but if Congress had balls, and really wanted to shrink government, they could show the President that raising the debt ceiling is far from just an automatic or superfluous activity of Congress, but a reason to again take under review all current government spending. In fact, it is a great time to do so.
http://www.economicpolicyjournal.com/2013/01/the-problem-with-president-obamas.html
Or a new Congress that determined that prior spending authorizations should be slashed as a matter of course.
Congress does not need the debt ceiling to cut spending. Congress does not need to create an artificial crisis to force itself to act. Congress is completely free to say anytime they want: "Here is the spending we want to cut and here is how much we want to cut it." Obama has invited them to do so. The Republicans have refused. The rest is just posturing.
DeleteFrom the link:
DeleteBut, what is going on here is that the President is ignoring here is Civics 101, that the US government is structured around many checks and balances.
Is Wenzel joking? do you guys concieve of the debt ceiling as a congress' check against it past self? or have I got it backwards, and its a past congress' check against its present incarnation? What a fanciful conception.
Not to mention, Absalon is correct anyway. If congress doesn't like the direction of the debt, it can raise taxes or cut spending, without resort to the debt ceiling contraption.