The Weekly Sift

The notion that President Obama could avoid the debt ceiling by minting a trillion-dollar platinum coin and depositing it in the government’s account at the Federal Reserve has been around for a while now. (I first noticed it in July, 2011.) It sounds ridiculous because it is. (Even people who favor the idea understand that.) It’s a wacky solution that underlines just how wacky the whole debt-ceiling problem is in the first place.

Think about the situation President Obama will find himself in (by about mid-February) if the debt ceiling isn’t raised: Laws passed by Congress tell the President what taxes he can collect, what money he must spend, and that (even though these numbers don’t balance) he can’t borrow. Meanwhile, the Constitution tells him that his first duty is to “faithfully execute the laws”.

What’s he supposed to do? Several people, including Matt Yglesias, claim that the Budget and Impoundment Act of 1974* leaves the administration with no legal choices other than something off-the-wall like a trillion-dollar coin.

During the 2011 debt-ceiling crisis, the Very Serious Persons of the punditocracy did not stoop to comment on the trillion-dollar coin. Instead, they just refused to believe that our politics had gotten that dysfunctional. Congress might appear to be steaming headlong towards welching on all our nation’s commitments, but at the last minute wisdom would prevail. And lo: Congress temporized, giving a Super Committee of the Wise time to design an austerity plan.

Well, that worked out just dandy, didn’t it? The Super Committee deadlocked in the same place Obama and Boehner had: Republicans would not raise rich people’s taxes by a single dime, and Democrats refused to thrust all the sacrifice onto the old, the sick, and the poor. That deadlock set up the fiscal-cliff conflict that Congress again avoided at the last minute, but didn’t resolve. Now we’re looking at a second debt-ceiling showdown.

I think that sequence of events has been an eye-opener for the VSPs: Seriously? You want to do that again? [Yes, they do.]

Suddenly, the trillion-dollar coin doesn’t look so crazy. Well, it is still crazy. But picking a path into the fiscal future is starting to feel like picking a Bull Goose Loony at the asylum. Tom the Dancing Bug provides the proper level of seriousness:

So this week the trillion-dollar coin suddenly went from a fringy absurdity to a policy option that every VSP needs to have an opinion on. The WaPo asked financial types how the markets would react. Wednesday, NBC’s Chuck Todd asked about it at a White House press briefing, and Jay Carney dodged. “I would refer you to the Treasury.” Saturday, the Treasury issued an official denial.

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.

But a lot of other VSPs regard it as a viable option. Paul Krugman was one of the few to comment during the 2011 debt-ceiling crisis: “Outrageous behavior demands extraordinary responses.” He came back to it this week, characterizing Obama’s options as:

one [the coin] that’s silly but benign, the other [default] that’s equally silly but both vile and disastrous. The decision should be obvious.

Thursday he added: “we need a strategy to deal with the crazies if they really do prove irredeemably crazy, which seems all too possible.”

Former CBO director Donald Marron more-or-less agrees: The coin option “lacks dignity”, but “might be better than the alternatives if we reach the brink of default”. Former Director of the Mint Philip Diehl says minting the coin would work and have no obvious bad effects on the economy. As a co-author of the law it takes advantage of, he writes:

Yes, this is an unintended consequence of the platinum coin bill, but how many other pieces of legislation have had unintended consequences? Most, I’d guess.

And Atlantic’s Matthew O’Brien adds:

If it’s a choice between defaulting on our obligations, and minting a trillion-dollar coin, I say mint the coin. In an ideal world, Obama would end the platinum coin loophole in return for the House GOP forever ending the debt ceiling, as Josh Barro proposed, but I’ll settle for anything that involves us paying our bills as we promised.

So far, most conservatives still refuse to take this idea seriously. But they want the rest of us to take their don’t-raise-the-debt-ceiling threat seriously, and threaten impeachment if Obama somehow circumvents it.

Continuing to stake their claim as the Party of Stupid, Republicans at the NRCC tweeted an image** of a coin made out of a trillion dollars worth of platinum — as if that’s how coinage works. And the Network of Stupid made the same mistake even after the NRCC had been widely lampooned.

But liberals have an objection also, which Ezra Klein expressed like this:

The platinum coin is an attempt to delay a reckoning that we unfortunately need to have. It takes a debate that will properly focus on the GOP’s reckless threat to force the United States into default and refocuses it on a seemingly absurd power grab by the executive branch.

The right way for this crisis to end, Klein believes, is for the remaining grown-ups in the Republican Party (i.e., the business community) to take back control in order to save the day. That will start a civil war inside the party, so they will only do it if they have no choice; if they think Obama can still pull a day-saving gimmick out of his hat — especially one that could make him vulnerable politically — they won’t.

That’s why wannabe Republican grown-up Philip Klein (no relation) says minting the coin “would be tossing a life preserver to Republicans”.

Obama apparently agrees. That’s why he’s steadfastly refusing to take the burden off Congress by embracing any executive-branch gimmicks. He thinks Congress should pass a clean debt-ceiling bill. If House Republicans want to tie the ceiling increase to unpopular spending cuts, they can spell out what those cuts are. He isn’t going to give them any political cover.

[I’ve explained the politics of this many times: The American people have only very hazy notions of how the government spends money. So “spending” in general is unpopular, but the particular things the government actually spends on — Medicare, Social Security, defense — are very popular. Republicans want to take advantage of this by opposing “spending” but getting Obama to specify which programs to cut.]

Here’s how I put all that together: The coin would be a last resort, and while Obama should hold it in mind to buck up his resolve, the administration is right to deny that they are open to it — until the public understands that we are in last-resort territory and clamors for any kind of solution.

“Last resort” means: The Republicans have blocked a clean bill raising the debt ceiling. The Treasury has run out of books it can juggle to keep paying the bills. The government has shut down all but the most essential services, furloughed its workers, and the public has felt the first pinches: Retirees find that there is no one to process their Social Security applications. Income tax refunds are delayed indefinitely. Defense contractors are filing lawsuits to get paid. And there’s a big interest payment due on the national debt that there may not be money to cover***. The stock market is crashing. Wall Street is begging its bought-and-paid-for congressmen to do something. But still the House majority refuses to raise the debt limit.

Then — and only then — does Obama go on TV, explain the coin loophole to the public, say he has reconsidered his decision not to use it, and promise to trade away that ridiculous power forever if Congress also eliminates the ridiculous debt ceiling.

If that scenario plays out, America will be a laughing stock to the rest of the world. But we will have taken a pratfall, not tumbled into an abyss.

*After President Nixon “impounded” money Congress appropriated to buy stuff he didn’t like, Congress passed a law demanding that future presidents spend whatever Congress appropriates.

**Their image contains a false frame I can’t let pass: It’s not “Obama’s spending”, it’s the spending of the United States of America, duly authorized and appropriated according the Constitution.

***As Josh Barro points out: It isn’t just that incoming revenue covers only 60% of expenditures over the course of a year. Both revenue and expenses are “lumpy”.

It would be impossible to give certainty to people and entities owed money by the federal government about when and whether they would be paid; they would have to wait and see how much money the government could come up with on any given day.