Saturday, January 12, 2013

The Treasury and the Fed have repudiated the platinum coin

Here. And it's for the best. I'm not sure I'm so cynical I'd attach the word "ploy" or "gimmick" to it, but it's not a great idea.

...OK, maybe I'd say "gimmick".

Ultimately, we should not make the Fed conduct itself unprofessionably and unsensibly as a way around the fact that we can't get Congress to act professionally or sensibly.

We have another perfectly legal option to rebuke the Congress: the 14th Amendment. The 14th amendment takes default off the table by making it not just dumb but unconstitutional, which implies that Congress only has two options to ensure that the executive can execute the laws of Congress: change revenue or change spending (or, of course, both). You can't default on the debt and you can't invent a new way to do arithmetic, so you better change the revenue and spending directives that you give the president if your goal is to limit the debt.


  1. The administration has already been explicit that the 14th amendment option is off the table. And I don't see what isn't professional or sensible about the treasury option. Letting things stall out due to an arbitrary and potentially unconstitutional statutory limit while unemployment is still high (and just to score points against the other party, at that) seems far and away more unprofessional to me.

    If you're in favor of issuing more debt, and said debt can be monetized, then as Vernengo recently noted, you're basically saying printing paper is okay but minting coins is not.

    I dunno, maybe you've gone into detail about this elsewhere and I missed it. What are your specific objections to the coin idea?

    1. So the administration says both the platinum coin and the 14th amendment are off the table, but for some reason the 14th amendment being off the table presents an obstacle for me that the platinum coin being off the table doesn't present to you?

      Screw what the administration says. What is the best option? Clearly it is the 14th amendment option - simply ignoring Congress. That's all I'm saying. Compared to that, the platinum coin is comical and makes us look unprofessional, and it forces the Fed and the Treasury to make the markets wary to get around the fact that Congress is making the markets wary.

    2. No, it doesn't present an obstacle at all. You can go right on arguing in favor of Plan 14. However, you haven't answered my question. I already knew you felt the coin idea is somehow "unprofessional." I'm asking if there's a reason for this other than "it's ICKY."

    3. It's not that it's "icky". It's not that in and of itself it's any different than if we issued greenbacks as Min said below.

      The point is, we have a set of monetary institutions that work. It's unprofessional because it is using an ad hoc solution, insisting a functioning monetary institution stop doing its normal job to help implement an ad hoc solution, not to deal with some unconventional problem that needs fresh thinking but as an end run around the legislature that's not doing it's job in a professional way. It is roundabout, ad hoc, unnecessary, and it ropes many more otherwise smoothly running institutions in to deal with one institution that isn't running smoothly.

      Much better, I think, to straightforwardly address the actual problem.

      "Icky" has nothing to do with it. There's nothing at all "icky" about it.

    4. "The point is, we have a set of monetary institutions that work."

      This is pretty debatable. And "ad hoc" or not (also debatable), is "X is traditionally done this way" really a decisive argument? You say of the coin "unprofessional," I say of your perspective "inflexible."

      Roping more institutions in how? The treasury and the fed cooperating is nothing new. You've said it's functionally the same

      I dunno, man. This and your new post both just aren't doing it for me. I am sure I'm not going to change your mind, but here's how I look at it: if the problem is we need more spending, here is a way to keep spending going. From Point A to Point B: a problem solver's solution. That's the sort of thing one might think we elect a president to do. However, somewhere along the line the problem appears to have shifted in this discussion from "spending is too low" to "congress isn't behaving." Now we are getting away from resolving the fiscal crisis and trying to find a way to bring a collection of mewling, puking infants in line.

      This is very much what I assume the administration's perspective is, too; it's a very cynical sort of political age, and it often seems no action is possible unless it scores points in some regard against the other party. I dunno, maybe one day you'll end up working for some Democratic administration, yourself.

    5. In case I wasn't clear: I still do agree with your view on the 14th amendment thing as being far and away preferable, so this never comes up again. I just wouldn't be so quick to scoff at the mint tactic, too. Different strokes for different folks, and if Obama is going to change his mind on either of these two tactics, I guess you and I can take bets as to which one he deems less explosive.

  2. From what you say, I suppose that you disapprove of the greenbacks during the Civil War? To be sure, we are talking about a loophole in the law, but what is gimmicky about the gov't meeting its obligations by creating currency? And what would be unprofessional about the Fed accepting currency as a deposit? I would think that not accepting currency would be unprofessional.

    1. Greenbacks are fine. It's not the idea of monetizing the debt that I even have a problem with. We have institutions for guaranteeing an "elastic money supply" as they used to say - the Fed. We are not talking about a platinum coin because there is some necessity to monetize the debt. We are talking about it because Congress is trying to repeal the laws of arithmetic by passing conflicting revenue, appropriations, and debt bills. We ought to simply not indulge them in something they don't have the power to do. Just issue more debt until they give you the revenue and appropriations bills that force you to do something else.

    2. IOW, ignore the debt ceiling.

      Maybe that would work. It would be hard to get the Senate to convict Obama. It might even be hard for the House to impeach him. But you bet the right wing Reps would try. We do not need a constitutional crisis. Things are bad enough. And how would the markets react? Besides, Obama has said that he is not going to invoke the 14th amendment.

      The thing is, loophole or not, Congress gives the Treasury the right to mint platinum coins of any value. There is no constitutional problem with that. By minting enough coins, the administration could follow the letter of the law and avoid economic chaos. But not political chaos. ;)

      Anyway, the conduct of the Fed is not at issue.

  3. Look, I can't say I agree with your take on the platinum coin. You say that we need to get congress to act sensibly and professionally, by getting back to the revenue and budget issues directly. I agree with you there.

    I see the debt ceiling circus as essentially brinksmanship by house Republicans and a distraction. The platinum coin option would get us past that by allowing the executive to carry out legislated spending: it resolves the contradictions in legislation by changing the situation. Now, had the coin option been exercised, congress would have to go back to passing budgets and revenue bills (or, more likely to the government shut-downs of the Clinton era).

    Hypothetically, the 14th amendment option does the same thing, right? Perhaps, but I think it's much more likely to cause a crisis by creating a huge uncertainty while the Supreme court hashes things over. Not to mention the possible hair-splitting decision.

    Plus, there's the whole period when Obama is forced to choose which laws to execute, before somebody can bring a suit that would be taken up by the court. He's either got to ignore the debt ceiling and order the treasury to issue new debt, or start making decisions unilaterally about what to cut and where to keep spending. Frankly, I'm not sure what he'd do. It could be a big mess.

    I'm starting to lose faith in the three ring circus set up by the founding fathers.

    1. 1. The "14th amendment option" seems to me to get us back to normal operating procedure - what every other country does essentially, and it tells the Congress they can't repeal the laws of arithmetic. That seems like it would be much less disruptive than the platinum coin to me, which might be perceived very differently.

      2. The legality of both are going to be challenged. In a sense it would be nice to settle it in court.

      3. On your second to last paragraph - I am proposing he simply ignore the debt ceiling. He should note that issuing debt is part and parcel of executing the Congress's appropriation and revenue bills and that he does not have the option of defaulting on the debt because it's unconstitutional.

      Both solve our problems - agreed? I am simply proposing that ignoring the debt ceiling and citing the 14th amendment solves our problems less disruptively.

    2. It is unlikely that either option would end up in court. In the case of the coinage, what is the complaint? What is the remedy? In the case of ignoring the debt ceiling, Congress has a valid complaint that Obama would be breaking the law. However, the Court avoids such disputes, particularly as Congress has a constitutional remedy: impeachment.

      During a debt ceiling crisis, if Obama pays creditors but does not meet other obligations, then people who did not receive the money they were supposed to might sue. That option could lead to court.

    3. The Dems in the Senate in their letter today assured Obama, Congress, and the world that they will not convict Obama if Congress does not raise the debt ceiling and he is impeached for breaching it.

  4. I was partial to the coinage option, for the reason that it doesn't require the administration to break the law or cause a constitutional crisis. Daniel's objection would seem to stem from his faith in federalism (though I would argue that coinage would just be faithful execution of the law, using a voluntary surrender of coinage authority from the congress). I think that the problem is really that our institutions are proving inadequate to meet the needs of this historical moment ("preservation of archaic traits", in Veblen's lingo) -- the system is dysfunctional, because it requires a level of good faith that one party won't provide. I thought the coinage option would dramatize this fact for the public.


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