Should we mint the platinum coin?

by on January 7, 2013 at 12:58 pm in Law, Political Science | Permalink

The economics of such a move would work fine, and I understand the game-theoretic rationale, but still I agree (strongly) with Kevin Drum’s “no” answer.  I don’t know if the courts would uphold such a move, but I do know they would not uphold such a move instantaneously.  The uncertainty would in the meantime whipsaw and shut down the markets and the shadow banking system.

And let’s say that — somehow — the whole thing miraculously worked out well from start to finish.  The testier Republicans would in fact get exactly what they want.  They would receive isolation from any negative consequences from brinksmanship, and a new narrative about how President Obama is a fascist incarnate.  Keep in mind that since the coin would bear the sparkling image of Sayyid Qutb, there are even some members of the American electorate who would find such charges plausible.

This is a bad idea, and Obama has been wise to try to take it off the table from the get go.  He knows that Congress actually needs to sign off on a solution, as indeed they have twice in the last year.  It also confirms Paul Krugman’s view that he would not in fact make a good Secretary of the Treasury.

Addendum: Felix Salmon has good comments.

Anthony January 7, 2013 at 1:11 pm

How is minting a $10^12 coin going to have a different effect than directing the Federal Reserve to buy back that much debt by “printing” dollars? President Obama doesn’t have quite the authority to “direct” the Federal Reserve, but if he was able to persuade the Fed to go along, it would be unquestionably legal.

Alexei Sadeski January 7, 2013 at 2:20 pm

The Treasury prints the money, and they are under Obama’s purview.

Barkley Rosser January 8, 2013 at 4:08 pm

The Treasurey mints coins, but it does not print paper money. The various branches of the Fed do that.

Lee January 8, 2013 at 11:50 pm

Barkley, you are wrong. The Fed puts paper money in circulation but the Bureau of Printing and Engraving, a.k.a. the Money Factory, an agency of the Treasury, prints it. The Fed buying assets leads the Bureau to print more money, though.

Doug January 7, 2013 at 2:53 pm

Let me preface by saying I’m a right-wing, hard-money, gold-hoarding Austrian fanatical lunatic.

However there’s a clear difference between the two. First of all the Federal Reserve is viewed internationally as a highly independent central bank who more or less holds complete authority over all monetary policy. The platinum coin would set a precedent whereby the very non-independent Treasury Department could now create money.

To the extent that the American economy hasn’t completely gone down the crapper, it’s because the dollar’s status as a reserve currency has allowed the Fed to engage in huge amounts of monetary stimulus with only having a minor effect on the dollar’s exchange rate.

However no fiat currency in history has ever achieved or held reserve or safe-haven status without high central bank independence. The distinction between politicians having to persuade and politicians being able to direct is not one of semantics. It is literally the thing that separates the US dollar from the Zimbabwe dollar.

To make an analogy, President Obama doesn’t have the authority to do a lot of things, but if he could persuade the Supreme Court then he could truly do quite a bit more than what he currently has the power to. However if he could simply “direct” the courts to do his bidding then once again we’d be Zimbabwe, not America.

msgkings January 7, 2013 at 3:09 pm

+1 to Doug

And Felix Salmon’s linked comment too.

prior_approval January 7, 2013 at 11:28 pm

‘Everybody who’s ever been in charge of any country’s finances knows that the concept of a debt ceiling is profoundly stupid, self-defeating, and generally idiotic.’

Well, the Germans would somewhat disagree with that, though it is true the German laws as written are not a hard ceiling like the American version.

The German framework is no new federal debt unless it is for ‘investment’ – and yes, the highest German court can review the budget to see if it meets that standard.

Philip Diehl January 11, 2013 at 10:35 am


The platinum coin would create no such precedent because the Secretary would not order the coin.

Geithner or Lew and Bernanke would have lunch or a drink at the Willard and agree that it was time to save the economy from the kooks in the House with a round of PE (platinum easing). Bernanke would go back to his office, call the Mint and order the trillion dollar coin, and the physical and accounting machinery would spit out a trillion dollars into the general fund in about a day.

Philip Diehl
35th Director
United States Mint

Eric January 7, 2013 at 1:18 pm

As bad an idea as minting the coin may be, defaulting on our debt is a far worse idea with much more devastating economic effects. Congressional Republicans should take that idea off the table.

mavery January 7, 2013 at 1:36 pm

Conventional wisdom among Republicans appears to be that refusing to raise the ceiling without massive spending cuts is the optimal strategy for them. It’s not like they haven’t done this before. They seem to assume that either the Democrats will refuse to let them act insanely or that a global economic recession would be in their best interest.

TallDave January 7, 2013 at 2:21 pm

That’s just a Turing fail. Republicans generally believe moving massive amounts of spending out of government hands would be a boon to the economy. They have also passed legislation requiring Treasury to avoid default by prioritizing debt payments.

mavery January 7, 2013 at 2:31 pm

But that’s not how it works. You don’t get to wave a wand and pretend that continuing to pay off our bonds (for a while) doesn’t mean you’re going to end up crushing our economy and causing markets to lose faith in the dollar.

TallDave January 7, 2013 at 2:48 pm

How what works? What exactly is going to “crush our economy?” Why would anyone lose faith in the dollar over spending cuts that will preserve it?

These deadline debates not new, in fact contrary to popular opinion they are considerably less extreme than in the past. In the 1980s Reagan actually threatened to stop sending SS checks if a deal wasn’t struck.

mavery January 7, 2013 at 3:00 pm

They’ll lose faith if the debt ceiling is not raised. That was my point from two posts ago. I thought you were saying that no one would mind if that happened, since “[The Republicans] have also passed legislation requiring Treasury to avoid default by prioritizing debt payments,” but maybe you were just assuming Obama would blink.

TallDave January 7, 2013 at 3:56 pm

Again, lose faith in what? They’re still getting paid. And there’s no reason to think they will ever not get paid — except for out-of-control spending!

This whole debate has been consistently misframed — the danger is not that the debt ceiling won’t be raised, that has very little impact on our ability to repay debt (it’s not like the gov’t is incapable of operating under a balanced budget). The danger is that spending won’t be cut.

Steve January 7, 2013 at 7:18 pm

If the Republicans would tell us what they want to cut (other than Big Bird) I might have some sympathy for them. For a “small government” party to use not cutting Medicare as a big issue this last election seemed disingenuous at best.

Jan January 7, 2013 at 7:48 pm

Right. Republicans should specify what exactly they want to cut. Again, they want to force Obama’s hand by playing chicken and then make Dems propose the cuts.

Andrew' January 8, 2013 at 9:46 am

Or we could have run surpluses for a while. We are now into our SECOND DECADE of perma-stimulus. At some point it becomes the long run.

TallDave January 8, 2013 at 11:20 am

Sigh. The GOP has passed several budgets in the House with major across-the-board cuts. They’ve also proposed CPI chaining and other things.

Brian Donohue January 7, 2013 at 2:38 pm

I agree with your description of what Republicans believe. Hell, it’s what I believe. Republicans ran on (among other things) repealing Obamacare, and they lost. This is how democracy works. So now our choices are a path to crippling default or paying for what we voted for. And that means higher taxes for EVERYONE, along with whatever spending cuts we can get (Pentagon is lowest hanging fruit here, but nothing makes Americans accept spending cuts like the realization that it’s their dime, and not some rich guy behind the tree.) It takes time, but this depressing truth is, I think, starting to sink in.

Stephen January 7, 2013 at 3:30 pm

Except for the end of the end of the reduction in the payroll tax, I don’t think I’ve seen any politician argue for higher taxes on everyone. That’s one way not to get elected. After all, even Democrats love to say they cut taxes (except for on the rich) these days.

Brian Donohue January 7, 2013 at 4:12 pm

Yes, Stephen, I understand the political dialogue continues to lag, but if something is unsustainable, it tends to stop. To me, the only question is: how?

Politicians aren’t always craven- I suspect most of them have a good understanding of the math at this point, and thery’re all like: “But how do we break it to our constituents?” Republicans and Democrats need different types of political cover here, but they both need cover, and to the extent the American people start to get the joke, it helps soften them up for the news.

If some grand bargain is reached, and the US signals it’s deciding to treat public finance in an adult way, everyone’s gonna want to claim a share of credit come next election, even if the immediate reaction is negative. So, dammit leaders, every once in a while, ya gotta lead.

This seems to be the MO for intermittent political progress in this country for decades now.

msgkings January 7, 2013 at 4:28 pm

Brian D is winning this thread.

Stephen January 7, 2013 at 6:33 pm

I think it will come down to what’s more politically popular- tax hikes for everyone or some sort of benefit reductions in SS and Medicare and Defense cuts. I think given that the cuts will hit less people (though yes, a larger % of old people vote), they’re slightly more likely to occur than the tax hikes on everyone. Which politician is going to run on having raised the taxes and beat someone promising to lower taxes?

Adam January 7, 2013 at 4:38 pm

It’s a pretty obvious game. They don’t really want massive spending cuts, because they know that such cuts are overwhelmingly unpopular, so they vote for spending not terribly different from the Dems and the President.

But the debt ceiling gives them an opportunity for political theater in which they can pose as opposed to the spending for which they just voted.

Meanwhile, the electorate isn’t paying all that much attention, so a few weeks of political theater is enough to convince a significant segment of voters that they actually are against the spending for which they voted.

MikeDC January 7, 2013 at 3:31 pm

In practice, how is minting the coin going to be different in effect than a default?

mavery January 7, 2013 at 3:40 pm

The US Government keeps paying its bills (as it is legally obligated to). The Legislative branch now effectively loses control over the ability to control the purse strings. It’s a different kind of crisis. It’s more like our government falls into turmoil and disarray rather than the global economy. (At least not at first.)

MikeDC January 7, 2013 at 8:38 pm

So instead of a global economic crisis we get a crisis of our government falling into practical dictatorship followed by a global economic crisis?

That doesn’t sound like a win to me.

Curt F. January 7, 2013 at 9:20 pm

Maybe the Legislative branch gets mad and sends the Sergeant-at-Arms of the House of Representatives and a ragtag coalition-of-the-willing band of Capitol policemen to storm the White House and prevent the coin minting order from being signed. Secret Service agents there protect the President, resulting in a shootout. Eventually the Secret Service pins down the invaders behind a strip of parked cars on Pennsylvania Avenue. Just as it looks like the Legislative troops are done for, the 29th Infantry comes in. The Executive troops are scared off, and the Military takes the White House.

Robert Gates declares martial law and Obama and Boehner are both charged with treason and dereliction of duty. Gates, a benevolent dictator, plans to declare a new Constitutional Convention and calls for new elections within a year, but behind the scenes, Bill and Hillary Clinton have secured the alliances of the governors of New York and Maryland to put a stop to the proposed Convention. The National Guards of Maryland and New York mount an invasion of Washington, DC. Due to defection by key Air Force and Naval generals, the city cannot be held. It falls to the Clintons and Bill Clinton again becomes leader of the nation, this time as Chairman and Chief Advisor to the Federation of American Governors and Supreme Commander of the National Guardmen of the Free States.

In the final act, John Roberts and the US Marshals try to take back DC from the Governors. Meanwhile, California and Texas secede from the nation, and most other states west of Pennsylvania declare their allegiance with one or the other. The scene changes to a meeting outside a secrete Politburo conference chamber in China. “Very interesting, these developments,” whispers an aging Jiang Zhemin to Xi Jinping. “Perhaps we should proceed with the invasion after all.”

Jerry Bruckheimer can produce and Peter Jackson can direct. What do you think?

Mark Thorson January 7, 2013 at 6:00 pm

You can lose a coin. “The last time I saw it, I put it in my desk in the Oval Office because we were having some Boy Scouts in for a photo op. I’ve checked three times, and I can’t find it. It’s around here somewhere, I’m pretty sure.”

That would knock other news off the headlines for a few days. Might be useful, depending on what that other news will be.

x January 7, 2013 at 8:14 pm

Is default really bad?

Bondholders would lose out, but the people in the U.S. will have a net gain, since all the debt is held outside the country becomes free money.

Also, if possible, one could try to default only on foreign held debt.

BC January 7, 2013 at 11:14 pm

Indeed, defaulting on our debt would be very bad. That’s why it’s incredibly irresponsible for the elected head of the government to risk default, just to avoid entitlement reform. The fact that he has to deal with extreme members of his own party that are in denial about the need for such reform — they are so extreme that they even propose minting a 1 trillion dollar coin — is no excuse. As President, it’s his job to provide strong leadership by standing up to the extreme members of his own party.

Brian Donohue January 7, 2013 at 1:22 pm

“The economics of such a move would work fine,” Hmm, say what?

“Governments aren’t households” you say? Oh yeah.

In that case, make no small plans. I move for a $500 quadrillion coin.

I think Sumner’s already there.

I know all the rhetoric and polls suggest that Republicans get the blame for a debt crisis, but I give the American people more credit than this. We sent the same folks back who spent 2011-2012 butting heads, we want this thing fixed, it’s gonna take both parties, and, if it doesn’t happen, everyone gets their share of blame and Obama’s second term turns into a listing, rudderless ship. He’s the damn President- isn’t it time for a serious stab at leadership here rather than endless political maneuvering?

msgkings January 7, 2013 at 1:31 pm

Hear hear. The taxes increases happened, now the spending cuts need to, and if the Reps need the ceiling as leverage to get the Dems to do what they freaking should do, so be it.

The debt ceiling is a stupid thing to exist, but it’s less stupid than not addressing our spending issues. The megacoin is stupidest of all.

Eric January 7, 2013 at 2:01 pm

“The taxes increases happened, now the spending cuts need to.”

This is a silly talking point. We did have spending cuts in 2011, known as the Budget Control Act. Revenues can and should still be on the table for the next round of negotiations (probably in the form of closing loopholes/tax reform).

msgkings January 7, 2013 at 2:11 pm

I disagree, we need far more spending cuts/benefit cuts. Think Simpson-Bowles.

I do agree there might be room for more revenue through more fundamental tax reform.

Will January 8, 2013 at 12:35 pm

Simpson-Bowles also included way more revenue than current law, because it started with a full expiration of the Bush tax cuts and then added additional revenue on top of that.

Sam January 7, 2013 at 3:23 pm

This is silly. Congress has plenty of opportunities to address spending each time they pass a budget or spending bill. That is the time to address spending, and not passing a budget offers plenty of leverage. Congress has already voted to spend money. Now the republicans want to vote to not pay the bills.

JWatts January 7, 2013 at 6:04 pm

” Congress has already voted to spend money. Now the republicans want to vote to not pay the bills.”

Congress voting to spend money in the future is not the same as buying something today and not increasing the total debt amount is certainly not the same as refusing to pay the bills. It’s refusing to borrow money to fund future spending.

derek January 7, 2013 at 9:35 pm

That is a silly argument. There hasn’t been a budget passed for what, three years? The house has the choice of two lever points; one is not passing a continuing resolution, the other not lifting the debt ceiling. Either would do. If it was me, I would not pass either.

Brian Donohue January 7, 2013 at 1:38 pm

It would appear Krugman has anticipated me: “It’s easy to make sententious remarks to the effect that we shouldn’t look for gimmicks, we should sit down like serious people and deal with our problems realistically. That may sound reasonable — if you’ve been living in a cave for the past four years.Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous — far more ridiculous than the notion of the coin.”

Score one for ideological war-mongering, balm to extremists of all stripes!

So now I’m trying to imagine what’s happening in a paralel universe where the Democrats won the House last November. Ah, there it is. No debt ceiling constraint and “the Greek solution” even closer to our doorstep.

Andrew' January 7, 2013 at 1:47 pm

And this because one side doesn’t want to raise taxes on group B to continue funneling cash (CASH!) to group A. How insane those people are.

msgkings January 7, 2013 at 1:52 pm

Group A is Medicare, Social Security, and Defense. We gotta spend less on those, but we gotta still spend a ton on them. And thus we needed to raise more revenue, because we were taking in far less revenue as a % of GDP than we used to during the boomtime 1990s.

Why is the obviously correct middle position of more revenue plus spending cuts so hard for the ideologues (left and right) to deal with?

Andrew' January 7, 2013 at 1:56 pm

We have different definitions of “gotta” to begin with. And we don’t really need more revenue, even the 4 or 5 to 1 spending cuts to revenue increases that most middle-of-the-road economists agree on. You could, I mean it might require Gandalf, but you could actually slightly reduce the size of government.

Andrew' January 7, 2013 at 1:58 pm

It sure is easy for some people to say that we gotta raise taxes on a group of people who keeps saying ‘no thanks.’ I haven’t seen any democrats say we have to raise taxes on the middle and lower classes that primarily use these programs.

msgkings January 7, 2013 at 2:01 pm

Well we don’t need more revenue now because we got it already. Now it’s time for the spending cuts.

If they can get the deficit down to 3-4% of GDP we’re done here.

MD January 7, 2013 at 2:02 pm

The trick is to enact spending cuts and tax increases that sizable majorities of Americans will hate without their knowledge.

Andrew' January 7, 2013 at 2:04 pm

And for what?

To continue failing in everything government touches? Because Medicare is fine and simply needs to be paid for? Because our Military is defending us? Hell, at least SS just hammers checks.

msgkings January 7, 2013 at 2:10 pm

Andrew’, while it’s impossible to disagree that the US and its government are far from perfect, it’s worked out pretty well for a pretty long time. We’re just trying to adjust the revenue and spending to account for a demographic wave in this mixed capitalist democracy we all love.

If you want to just go down the hard libertarian road calling for a Randian skeleton state, have at it. The commenters here will applaud you for the most part. But realize you sound like a college sophomore who’s got it all figured out after toke #3.

Moderates like me are boring but we live in the real world.

TallDave January 7, 2013 at 2:17 pm

Here in the real world, we seized as much money in 2012 as in 2007, but we’re spending a trillion dollars more in 2012.

My moderate solution is to cut spending to 2007 levels and not touch revenue.

msgkings January 7, 2013 at 2:21 pm

Too late, TallDave, revenue got touched. And now let’s try to get revenue down to 2007 levels, gradually.

Remember, a good deal of the spending increase was recession-based automatic stabilizers. Growth cures some of that, and in fact has been doing so. Basically we gotta change the benefits of SocSec and Medicare, and cut defense some. Think Simpson-Bowles.

msgkings January 7, 2013 at 2:23 pm

Sorry, I meant ‘get SPENDING down to 2007 levels…’

My kingdom for an edit function!

Andrew' January 7, 2013 at 2:30 pm

“it’s worked out pretty well for a pretty long time.”

No it didn’t, really, because it got us where we are.

What I think moderates like you are missing is how it isn’t the last straw that is the problem. And you are mistaking the popularity for someone’s grandma getting a check for the popularity of government failing as a whole. The Feds are just a big version of the locals who hold people hostage threatening to cut police and firefighters first. It’s just going to become obvious to the moderates last.

Andrew' January 7, 2013 at 2:37 pm


Can you show me a chart of makers vs takers by year?

Andrew' January 7, 2013 at 2:39 pm

I’d also like to see a chart of government spending surplus by year, say starting with the beginning of the interstate system.

TallDave January 7, 2013 at 2:44 pm

Shrug, they can always reduce taxes again in another law.

Even assuming they actually help, “recession-based automatic stabilizers” are only a valid argument for spending in years when we’re actually in recession, which was last true in 2009.

It would be nice if everyone could get together and pass appropriate cuts to defense, SS, Medi, and discretionary but while the Tea Party might push the GOP on defense we haven’t seen much flexibility from Dems on entitlements.

What drives me crazy is that the budget seems to be driven by the dichotomy that spending is limited only by the ability of politicians to pander, but taxation has real limits and economic consequences. You can see this failure pretty starkly in the Cali referenda. It looks more and more like the 20th to early 21st century is going be remembered as a period when we fetishized democracy over prgamatism and rule of law to the point governments could no longer function.

msgkings January 7, 2013 at 2:45 pm

Andrew’, I guess we just disagree about how we like ‘where we are’. I see a pretty good nation, you see us on the brink of the apocalypse. Can’t really argue with each other when we have such different priors.

But your blood pressure will thank you if you check out Ridley’s “The Rational Optimist”

TallDave January 7, 2013 at 3:58 pm

I agree, RO is a great, even inspiring read, I keep a copy on the front page of my Kindle. And Matt is a lot of fun to talk to if you get the chance.

mulp January 7, 2013 at 4:18 pm

Let’s see. Health care costs are killing the US economy. We spend twice as much per person and get less results with millions of Americans forced to wait to get “elective” treatment for diabetes and high blood pressure and other conditions until they qualify for free EMTALA $5000 a day emergency care to treat stroke, heart attack, or kidney failure.

It was Republican doctors in Congress who sought a SCOTUS order for life support for a dead woman with no assets.

So, Obama’s efforts to control health care costs by putting everyone is pretty much the same boat just infuriated the Republican doctors in Congress. The very idea that the working poor not be required to wait until they require $5000 a day free EMTALA care which gets paid for by government because a doctor or hospital CEO should not suffer a reduction in income down to the middle class – they are entitled to high pay, and the government better deliver.

And none of that European socialism where doctors are just ordinary working men. Doctors and hospital CEOs are entitled to being rich, and the government must make good on their entitlements.

The very idea of paying a doctor to talk with their patients on end of life care is outrageous – hospital CEOs are entitled to filling $5000 a day beds with dead people billed to the government by shaming children into going against the wishes of the dead. Obama’s reckless efforts to cut the doctor and corporate Medicare cash flow is just totally wrong for conservatives who build it on their own by getting elected to Congress and making sure their medical corporations are well funded.

How dare Obama take $800 billion out of the hides of medical corporations and redistribute it to working class doctors who simply see patients for $50-75 an hour on salary doing primary care! That will deny the specialists and hospital CEOs their entitlement of large number of patients at $5000 a day. The very idea of patients dying outside of a hospital two years later European style is just anti-American – the US health care system is entitle to taxpayer funding of $50,000 for every death bed.

Brian January 7, 2013 at 1:23 pm

A rare instance in which he is demonstrating some self awareness.

Yancey Ward January 7, 2013 at 1:35 pm

The day is rapidly approaching where the executive will use such a maneuver (platinum coin, or just Treasury selling bonds to the Fed minus the Congressional authority to do so), the courts will acquiesce, and the Congress can be dissolved since it would no longer serve any useful purpose.

These sorts of ideas (the platinum coin) always sound ridiculous the first time you hear them because they are ridiculous, but then some people start taking them seriously, and before you know it, they get implemented by someone not very restrained by rules and laws.

NAME REDACTED January 7, 2013 at 1:57 pm

Yep, the entire reason legislatures were invented was to take away the power of the purse from the executive.
This defeats that.

Sam January 7, 2013 at 3:25 pm

No, it doesn’t. Congress still gets to decide how much to spend, when it passes spending bills. If you pass a spending bill, you have to deal with the consequences, which is that the spending will happen, and (if it’s more than the tax receipts) the debt will go up.

Yancey Ward January 7, 2013 at 6:30 pm

Well, the laws don’t actually say that, Sam. Congress, in wisdom or not, has decided to separate the issues. The coin is a way to go over Congress’s head.

Peter H January 7, 2013 at 7:51 pm

What then, is the President to do when Congress has flatly contradicted itself?

Congress has said, in no uncertain terms, that the President must spend all funds appropriated by the Congress. (Congressional Budget and Impoundment Control Act of 1974)

Congress has said, in no uncertain terms, the rate of taxation the President must appropriate from the people (Internal Revenue Code of 1986, et seq.)

Congress has said, in no uncertain terms, how much debt the President may issue to accomplish the spending required by the Congress (Public Debt act of 1939, et seq.)

Congress has said exactly how much money the President must spend in the various appropriation bills.

These four laws, in concert, are flatly contradictory unless Congress amends one or more of them. The President is both required to, and prohibited from, spending the money Congress has appropriated.

When Congress passed laws that are in direct logical contradiction, something has to give. The coin is one way of giving. The 14th amendment option is another way. Flouting the budget impoundment act is a third. But something’s gotta give.

byomtov January 7, 2013 at 8:17 pm

Actually, I think they do.

Refusing to raise the debt limit is analogous to ordering someone to go to the store and buy $100 worth of goods, providing them $75 to do it with, and refusing to let them use a credit card.

Taken as a whole, the behavior makes no sense.

derek January 7, 2013 at 10:13 pm

Making sense, and exercising power are two different realms. Look at the last three years. Obama can say all he likes that the Congress spent, they should provide the funds, but he didn’t work to get a budget passed. Congress passed a budget, he presented on that didn’t get any votes from either house, and the Senate hasn’t done anything.

This only makes sense from an exercise of power perspective. How can he blame the Republicans for what he can’t or won’t do. The Republicans are responding in kind, using points of leverage to force some kind of movement. They could shut down the government by not passing a continuing resolution, or not raise the debt ceiling.

Yancey Ward January 8, 2013 at 10:45 am

PeterH and byomtov,

Your arguments would be completely moot, wouldn’t you agree, if Congress simply added a clause to all appropriations that the executive must spend these funds if the tax revenues and the power to borrow the difference is approved by Congress? Right? Congress doesn’t need to actually do this, however, since they are still the only body authorized to approve, without consent, borrowing on behalf of the US government.

As I understand your arguments, Congress is implying the power to borrow in the approved budgets of the same Congress. However, Congress explicitly disagrees with this argument by separating the two actions. The President doesn’t get to tell Congress what Congress means in passing it’s laws.

Harun January 9, 2013 at 1:40 am

Congress passed Ryan’s budget. So the will of the Congress is clear.

It is the will of the Senate that is not clear.

No budgets for 3-4 years. No votes on the Ryan budget.

And Obama’s budgets get zero votes.

Maybe we are asking too much of Congress and not enough of the Senate and the President?

I bet if we ran headlines about the above issues for 2-3 weeks we’d suddenly see more progress.

Instead the “consensus” is Republican obstructionism.

Again, why no budget votes in the Senate?

GiT January 8, 2013 at 12:01 am

Yeah, if Obama effectively raised the debt ceiling on his own prerogative, Congress would just be completely meaningless, just like legislatures the world over are completely meaningless in all the countries where the budgeting process does not separate debt authorization and appropriations into two distinct series of votes and veto points.

It would completely defeat the purpose of Congress, which would now have absolutely no control over borrowing levels, except for when fulfilling their obligation to formulate and pass a budget and determine government spending.

Yancey Ward January 8, 2013 at 10:29 am


I am not passing judgment on the wisdom of what Congress has done, but the power to do so rests with Congress. If the President can ignore this power, then Congress is meaningless. These other countries’s legislatures surely have the same power, but choose not to exert it, so your point is also meaningless.

GiT January 9, 2013 at 10:29 pm

Losing one power does not make something “meaningless.”

Right now, Congress has 3 ways to limit borrowing: the debt limit, the budget, and revenue generating measures (taxation). It only needs two in order to control the executive branch within the limits of Congress’s powers of prediction. Having all three simply makes it possible for the legislature to be logically inconsistent in how it directs the executive authority. The ability to order, and the issuing of, contradictory, incompatible direction to the executive branch *literally* makes Congressional actions “meaningless.” Conversely, ignoring any one of the three prongs makes the other two capable of bearing truth. Unless the US Congress takes appropriate action (something it was expressly designed to fail at doing), the Executive must defy Congress in order to obey it.

Pick one thing to delegate, codify as an automatic procedure, or for Congress to do automatically, given a deficit (in excess of that budgeted for): the power to structure and issue debt; the power to cut spending; or the power to levy funds from the populace at will.

TallDave January 7, 2013 at 1:57 pm

Generally speaking, insanity isn’t good economic policy. OTOH, it can often be good political policy, which is why there are so many lousy economies out there.

Yancey Ward January 7, 2013 at 2:03 pm

which is why there are so many lousy economists out there.

Fixed that for ya!

prior_approval January 7, 2013 at 1:59 pm

I wager 5000 quatloos that after all the wasted discussion, nothing will have changed.

I also wager 500 quatloos that eurogeddon will return as a topic after the absurdity of a trillion dollar coin hits global consciousness.

mavery January 7, 2013 at 2:13 pm

I think everyone should agree that this coin this is moronic. Hell, it’s probably better for the Democrats if it’s taken off the table as an option. (Because it really isn’t one. It’s absurd, and no one unfamiliar with the issue is going to react to “President considering minting $1 trillion coin” with anything but disdain. It smacks of political maneuvering, and the optics are horrible.)

It would also make it more clear that it’s entirely up to Congress to extend the debt limit.

Patrick L January 7, 2013 at 2:03 pm

“I don’t know if the courts would uphold such a move, but I do know they would not uphold such a move instantaneously”

I disagree. The lack of standing issue is a real one. Only congress can sue the executive branch over this, and the courts on these issues generally ignore these branch squabbles.

That leaves indictment, but contempt of congress isn’t worth a whole hell of a lot these days. The executive can just ignore that if they want, without any political or legal repercussions. Impeachment is the only real out and at the end of the day the Senate is in the hands of the Democrats.

Yancey Ward January 7, 2013 at 2:31 pm

You have the order of power completely correct. However, when the day comes, impeachment and conviction wouldn’t even work, even if you didn’t have a completely servile, rump Congress.

Michael Sankowski January 7, 2013 at 11:47 pm

You really need to weed through the posts over at the blog. Nobody has standing to sue on the coin.

Yancey Ward January 8, 2013 at 10:48 am

I don’t think standing is meaningful anyway. Ultimately, checking the executive branch is the responsibility of Congress, then the people themselves. I agree with Patrick that the courts are unlikely to get in the middle largely due to separation of powers issues.

Michael Sankowski January 8, 2013 at 2:49 pm

That’s very true. The executive power (and particularly in this case) should be checked mostly through congress. The courts are/should be a last resort.

In this case, the law is clear already, so there is not much the courts could do. But overall, it’s entirely worthwhile to debate the coin, and the power of the government to make its own money as it sees fit.

Our current monetary system delegates the power to make money to private banks. This has advantages and disadvantages. As Alex points out in his excellent post, the assumptions we operate the fed under are largely politically driven. We favor savers over borrowers.

This might be useful at times and has proven useful. But there are other times when we constrain demand through the interaction of favoring savers over borrowers and delegating money creation to the private banks.

Over at monetary realism, we don’t have all the answers or even all the questions. We’re just pointing out we are impoverishing ourselves needlessly. How we get out of this bad equilibrium is a political debate.

libert January 7, 2013 at 2:09 pm

“Keep in mind that since the coin would bear the sparkling image of Sayyid Qutb”

I don’t get this. Can someone explain to me why the coin would bear his image?

msgkings January 7, 2013 at 2:14 pm

Yeah, I missed that joke too. Dear god it better be a joke…

prior_approval January 7, 2013 at 2:24 pm

Well, lots of things here are a joke (and they are here all decade – try the veal), but as for the person himself -

‘Sayyid Qutb (Egyptian Arabic pronunciation: [ˈsæjjed ˈʔotˤb], Arabic: [ˈsæjjɪd ˈqʊtˤb]; also Said, Syed, Seyyid, Sayid, or Sayed; Koteb, Qutub, Kotb, or Kutb) (Arabic: سيد قطب‎; October 9, 1906[1] – August 29, 1966) was an Egyptian author, educator, Islamist theorist, poet, and the leading member of the Egyptian Muslim Brotherhood in the 1950s and ’60s.

Author of 24 books, including novels, literary arts’ critique and works on education, he is best known in the Muslim world for his work on what he believed to be the social and political role of Islam, particularly in his books Social Justice and Ma’alim fi-l-Tariq (Milestones). His magnum opus, Fi Zilal al-Qur’an (In the shade of the Qur’an), is a 30-volume commentary on the Qur’an.

During most of his life, Qutb’s inner circle mainly consisted of influential politicians, intellectuals, poets and literary figures, both of his age and of the preceding generation. By the mid-1940s, many of his writings were officially among the curricula of schools, colleges and universities.[2]

Even though most of his observations and criticism were leveled at the Muslim world, Qutb is also known for his intense disapproval of the society and culture of the United States,[3][4] which he saw as obsessed with materialism, violence, and sexual pleasures.[5] Views on Qutb vary widely. He has been described by some as a great artist and martyr for Islam,[6][7] but by many Western observers as one who shaped the ideas of Islamists[8] and particularly of groups such as Al Qaeda.[9][10][11][12] Today, his supporters are identified as Qutbists[13] or “Qutbi” (by their opponents, not by themselves).’

msgkings January 7, 2013 at 2:39 pm

p_a, we know how to use wikipedia too, but here, have some of the attention you crave.

You could be actually useful if you explain why Qutb is even being mentioned in this discussion. If that’s seriously who’s being considered to be on the megacoin then we are living in a Lewis Carroll novel.

mavery January 7, 2013 at 3:13 pm

It wouldn’t literally bear his image. But minting the coin would be authoritarian and a usurpation of power by the Executive from the Legislative. Having no knowledge of Qutb, I assume that he somehow represents the descent from democracy into autocracy. Or something like that.

Whatever. It’s a metaphor that I don’t really understand.

Brian H. January 7, 2013 at 4:49 pm

Qutb is the considered the main intellectual ancestor of Al Qaeda and other “Islamo-fascist” groups. So I’m guessing that Tyler is saying that the Republicans would end up accusing Obama of being a fascist, and since republicans supposedly believe Obama is a secret muslim, they would consider him an “Islamo-fascist.”

Or something. I’m kinda pulling at strings here to try to make this make any sense. Sometimes its hard to tell when Cowen is being Straussian and when he’s being nuts.

Roy January 7, 2013 at 5:29 pm

I think minting the coin will take Obama well past being called a fascist. He will start being compared to a really bad Roman Emperor.

I think none of you seem to grasp how a trillion dollar coin will go over in the provinces. And it will be less than a day before people realize if this is ok, why not mint 17 of them and pay off the debt? Heck why collect federal taxes? Their may or may not be flight from the dollar in the international markets, but inside the US it will completely undermine confidence. Their will certainly be an insane run up in gold prices.

Careless January 8, 2013 at 10:03 am

He had a hitler mustache, which must be half the joke. But I can’t guess the other half.

ed January 7, 2013 at 2:12 pm

“They would receive isolation from any negative consequences from brinksmanship, and a new narrative about how President Obama is a fascist incarnate.”

Excellent and incredibly succinct description of the downside.

Alexei Sadeski January 7, 2013 at 2:27 pm

I don’t get the problem with the debt ceiling fight. Obama held the Republican’s feet to the fire in the tax fight – which was of much more importance. What’s wrong with the Republicans doing the same to Obama?

Didn’t Bismarck say something about this? It involved sausages if I recall correctly.

mavery January 7, 2013 at 3:03 pm

One would’ve pushed the economy into recession and slaughtered a bunch of sacred cow. The other will destroy faith in the dollar and cause an international economic crisis. It’s absurd to compare the two.

Alexei Sadeski January 7, 2013 at 3:58 pm

There’s no need to be histrionic. The US isn’t going to default on its’ debt over a technicality.

mavery January 7, 2013 at 4:39 pm

Then why does anyone care about this whole debt ceiling thing?

Alexei Sadeski January 7, 2013 at 5:41 pm

For the politicians, it’s an opportunity to push each other around.

For everyone else, it’s a chance to talk about whatever you want to talk about.

Steve January 7, 2013 at 7:43 pm

You’ll need to explain this a little more clearly. If we don’t increase the debt then someone doesn’t get paid, right?

Alexei Sadeski January 7, 2013 at 7:52 pm

I’m saying that it’s going to be extended no matter what. It’s just a matter of political posturing before it’s extended, trying to extract concessions from the other side.

I’m saying that in this game of chicken, both sides are going to swerve every time. It’s simply a matter of rhetoric, empty threats, etc.

I’m saying that it’s normal politics.

Steve January 7, 2013 at 9:22 pm

But we got downgraded because of this non-issue last year… I usually agree with Krugman but after reading the Felix Salmon article I am hoping he is being facetious.

derek January 7, 2013 at 10:18 pm

The US pays something like $3-500 billion a year in debt servicing costs. There is more than $2000 billion in tax revenues. The full faith of the US Treasury on their debt is easily covered by the income. There would be no default on debt.

There would be a bunch of other stuff that they wouldn’t pay for, but that seems to work ok in Illinois.

Philip W January 7, 2013 at 2:30 pm

I find it hard to believe how many people find this to be a genuinely difficult question.

The President will win the debt ceiling showdown. (Bank on it–i.e., if you really believe there’s a serious chance he won’t, start liquidating your portfolio. Presidents always win debt ceiling showdowns–we have many decades of experience, and while the negotiations in 2011 suggest that Obama is more inclined to make concessions, that experience does NOT suggest that we are unlikely to get a deal. People are awfully taken in by the “down to the wire” nonsense.)

Given that the President can, should, and almost certainly will win in a straightforward way, talking about how he can pull a rabbit out of his hat is just a big distraction.

Andrew' January 7, 2013 at 2:47 pm

So, the narrative is that deficit taxes just allows the lower-middle class to have government services without taxes. I’m not sure I buy that, why not just vote higher taxes on the top 50%-1? But supposedly they prefer borrowing. Now that the top 50%-1 or so can’t limit spending and would like to limit borrowing, the narrative is that this is somehow insane? How does this work exactly?

Andrew' January 7, 2013 at 2:53 pm

The entire premise is that since the takers have voted that the makers must now pay. That’s not how exactly it works. This is you seeing that it’s not exactly how it works.

MD January 7, 2013 at 3:05 pm

What is it with this takers versus makers bullshit? Sometimes you are a maker, sometimes you are a taker. I paid some taxes last year. Then I drove on a public street and thanked a city parking enforcement officer for ticketing somebody who was blocking my driveway. My grandmother worked for 45 years. Now she gets social security checks and medicare. So she was a good American until she turned 65 and is now an asshole? Christ, that’s fucking idiotic.

msgkings January 7, 2013 at 3:10 pm

+100. Grow up, Andrew’.

Andrew' January 7, 2013 at 3:13 pm

It’s called an analogy. You grow up. Or offer an alternative explanation of what’s going on. You can’t, other than to claim one side is going to lose votes, except that after three elections they are still there.

Andrew' January 7, 2013 at 3:14 pm

It USED TO BE that sometimes you were a taker and sometimes you were a maker.

Above I ask you for the chart by year that that hasn’t deteriorated. How is that coming?

msgkings January 7, 2013 at 3:17 pm

Lotta fail from you today, Andrew’.

Andrew' January 7, 2013 at 3:32 pm

If you don’t perceive there is an underlying problem, that’s not really my failing. My job is to understand it, not to convince anyone.

Andrew' January 7, 2013 at 3:35 pm

For example, why doesn’t anyone talk about spending more money on Medicare/SS/Defense because each and every dollar has a positive return? It’s because each and every dollar has a negative return. That’s obvious. It’s not exactly clear why people only take notice once the government is broke. My only job is to understand why voters tolerate such destruction even beyond the government insolvency point. Part of it is what Milton Friedman said, paraphrasing, that if they didn’t destroy so much wealth we’d see more evidence of their waste.

Rich Berger January 7, 2013 at 3:51 pm

I sympathize with you, Andrew, but you have to understand the futility of your arguments. Per Jonathan Swift – “It is useless to attempt to reason a man out of a thing he was never reasoned into”.

Brian Donohue January 7, 2013 at 4:50 pm


I get that there is a lack of trust that spending cuts will materialize- part of me shares this concern. I still think raising taxes is the next step (oh, for the cliff, which also would have cut spending!) At long last, the American people will see both sides (costs, along with benefits) of their shiny new welfare state, which may affect their view of the whole kit and kaboodle.

Over time, I envision US health care as a ‘base’ public plan, without a lot of frills, and a private tier on top, for the hundreds of millions of Americans willing and able to cough up for top-notch health care. Aren’t Canada and the UK converging on this type of model from the other direction?

Obvs January 7, 2013 at 8:13 pm

Andrew’, can I ask what “maker” kind of job it is that you go off to everyday that allows you to post dozens of comments on here in a 24 hour period? Just curious, please ignore if too personal.

Bill January 7, 2013 at 2:48 pm

If we mint a trillion dollar platinum coin,

We should give it to

Lockheed Martin

In Full Payment for the F-35

Because that’s how much it costs.

Thom January 7, 2013 at 4:07 pm

Wouldn’t they just deposit it with their bank, who would deposit it at the Federal Reserve? Extra steps.

Yancey Ward January 7, 2013 at 6:33 pm

I think Bill’s thinking is that Lockheed gets scammed. You have it right.

Bill January 7, 2013 at 9:08 pm

Just the true cost of the program.

A trillion here, a trillion there.

Yancey Ward January 8, 2013 at 10:50 am

In other words, Bill pawned by Thom, and Lockheed.

Alex Weiner January 7, 2013 at 2:49 pm

What on earth does Sayyid Qutb have to do with this?

Andy G January 7, 2013 at 2:52 pm

I’m a big fan, but I don’t understand the Sayyid Qutb reference — it seems gratuitous. Isn’t the platinum coin more like the shenanigans that happened during the Clinton-era Mexico financial crisis.

Philip J January 7, 2013 at 3:08 pm

Big Fan of Marginal Revolution, but the Sayyid Qutb comment is almost out of bounds. I agree that we should not make the $1 Trillion coin, given that, I would place even the face is mere speculation, and biased one at that.

Ray Lopez January 7, 2013 at 3:13 pm

CNTRL+F and “unconstitutional” gives no hits in this thread…so let me point you to this article, please read it. Basically no need to print a coin, simply declare the debt ceiling unconstitutional, and force Congress to sue you. It’s legal and avoids the problems TC and Felix Salmon complain about (there’s no need for the President to concede that the debt ceiling is legal–when in fact there’s doubt that it is). Go here:

Andrew' January 7, 2013 at 3:20 pm

That’s default. Not letting debt go beyond the inability to pay would be one tool in the not defaulting toolbox. Thus it could be argued that the 40% excess spending is what is unconstitutional.

mavery January 7, 2013 at 3:44 pm

Regardless, you run in to basically the same problems outlined above by Tyler, as well as in the link by Felix Salmon.

What’s necessary here is for Congress to act like adults and not say, “We get what we want or else!”

TallDave January 7, 2013 at 4:58 pm

Or, they could just spend less money. There’s plenty left over even after debt service, SS, and Medicare. Very few of the people wailing about the horror of default seem to realize operating within revenues is possible.

Steve January 7, 2013 at 8:17 pm

Do you think cutting spending will have a positive effect on the economy?

TallDave January 8, 2013 at 11:21 am

Yes. Government is not an efficient allocator of resources.

GiT January 8, 2013 at 12:12 am

So you’re perfectly happy with the executive branch cutting spending at its own discretion? I mean hey, as long as there are cuts. Great opportunity to play like there’s a line item veto and just not fund every single piece of pork to a Republican district.

Or would you rather Congress decide what to cut? Like it should have, if it wanted to, when it composed a budget.

Andrew' January 8, 2013 at 8:54 am

Nobody is okay with any of this bullshit. It’s just that one side keeps saying the only problem is a handful of people who won’t let them keep doing whatever they want.

Brian Donohue January 8, 2013 at 10:16 am

C’mon GiT, everything is not politics 100% of the time. If ever there was a time to put politics to one side, it’s immediately AFTER an election.

I’m not a right-winger, but it’s clear to me that Obama continues to enjoy kid-gloves media treatment while the “House Republicans are lunatics” trope is beyond cliche already.

The fact is that these two forces are equally legitimate and representative of this nation and need to work together, but the media insists on skewing the story in an unhelpful way. I’m not sure if it’s liberal bias per se as much as straightforward pandering to the people. The cliff, for example, was UNTHINKABLE REPUBLICAN LUNACY, as is the upcoming debt ceiling showdown. And the economics profession continues to indulge and enable this short-termist thinking.

The long-run, debt-service-wise, is right around the corner.

GiT January 8, 2013 at 11:37 am

What are you talking about? Congress passed a budget which will require borrowing. It passed all the relevant veto points. No one is doing ‘whatever they want.’ The majority just did something a small handfull of people don’t like and couldn’t stop. So now the same small handful are going to have the exact same conniption fit again and fail in doing whatever they want, again.

GiT January 8, 2013 at 12:08 pm

Sorry, last post was @Andrew, hadn’t refreshed the window.

Some house republicans are lunatics. One need merely listen to them speak. The fact is that the tea party congressmen are not legitimately representative of the nation. They are legitimately representative of a minority of the nation, and as such they don’t get what they want.

I don’t see anything objectionable about both the fiscal cliff and defaulting on the debt being labelled as policy paths that are inferior to a large set of possible policy choices around which Congress could conceivably agree. It is plainly obvious that for everyone those options are simply blunt instruments by which to bludgeon people into moving towards some superior outcome. The cliff was designed to be a sub-optimal outcome. Defaulting on the debt or forcing the executive into amending the budget at his own prerogative because of a formal inability to spend what’s mandated seems like it’s lunacy. Is there some compelling account by which either of those aren’t stupid things to do that no one prefers to other possible options?

Maybe ‘out of control government spending’ is also lunacy, but it’s lunacy that doesn’t result in either sovereign default or exclusive executive authority over government spending, under the budgeted maximums; and it’s lunacy which Congress already agreed to do.

But I don’t know, maybe handing such discretion to the executive is a good solution to the collective action problem of agreeing on cuts in the legislature. Maybe sovereign default is also a superior alternative to either raising taxes or cutting spending.

TallDave January 8, 2013 at 1:02 pm

Again, default is a red herring.

GiT January 8, 2013 at 2:23 pm

If default is a red herring, then executive discretion over spending cuts from the proposed budget isn’t.

careless January 8, 2013 at 11:16 am

Wow, is that a terrible logic fail in that link.

Rich Berger January 7, 2013 at 3:46 pm

So we are not raising taxes and we are not cutting spending, and now we are going to circumvent the debt ceiling. And the intelligentsia cheer us on.

Jan January 7, 2013 at 9:18 pm

Yeah, except for the raising taxes part.

Adam January 7, 2013 at 4:35 pm

We shouldn’t because we should raise (or better yet eliminate) the debt ceiling.

But if Congress refuses to do that, then it’s back on the table as an option. Perhaps even a more appealing than the alternatives option.

Hesiod January 7, 2013 at 4:42 pm

Of course, none of the people criticizing the Platinum Coin idea are accurately or even bothering to point out at ALL the massively horrifyingly bad consequences of the United States defaulting (the likely alternative scenario).

Consequence #1 — a massive devaluation of the dollar as everyone starts to dump Treasuries. Which, ironically, is exactly one of the biggest fears of the anti #MintTheCoin folks: Hyperinflation.

Consequence #2 — There will be enormous pressure from the rest of the world to drop the dollar as the world’s reserve currency. People do not understand how that will hurt the US economically. It would be catastrophic. And, it would force the US to collect reserves of whatever the new world reserve currency is. Most likely, it would also force the US to massive cut its domestic budget in ways the current GOP could only dream about.

Consequence #3 — Another Great Depression.

So, given all of this — If the only reasonable alternative is to Mint the coin then…mint the goddamned coin.

TallDave January 7, 2013 at 4:55 pm

Again, there’s no reason for the U.S. to default, revenues are many times interest payments. Not extending the debt ceiling essentially just means the government must operate with a balanced budget.

Brian Donohue January 7, 2013 at 5:50 pm

“a massive devaluation of the dollar as everyone starts to dump Treasuries”.

If you recall, this is 180 degrees from the reaction the last time the US almost defaulted. We are Through the Looking Glass.

Thom January 7, 2013 at 6:18 pm

Hyperinflation will get people out of bad mortgages, enabling them to move somewhere else where they will be more productive. #silverlining

MikeDC January 7, 2013 at 9:09 pm

These all seem to be likely consequences of minting the coin.

Because the coin is just another way of trying to sustain an unsustainable situation. The consequences you’re talking about don’t arise from arguing about the debt ceiling, minting a coin, or defaulting on debt. They are consequences that all arise from incurring more and more debt and creating an unsustainable situation.

zbicyclist January 7, 2013 at 4:54 pm

It’s possible that any sentence that includes the words “What Republicans believe” should be rejected on its face. Republicans aren’t unitary.

It used to be that Republicans were disciplined, while Democrats were not. Those days are gone, and not because Democrats are now disciplined.

Mike Sankowski January 7, 2013 at 4:57 pm

85 comments including the original post, zero math-based investigation into the economic impact of hitting the debt ceiling.

Stopping the government deficit spending will have a catastrophic impact on our economy. This is projected to happen some time between February 15 and March 1.

TallDave January 7, 2013 at 4:59 pm

That’s the strong Keynesian opinion. There are others.

Steve January 7, 2013 at 8:20 pm

If the government isn’t spending the money then where is the spending going to come from? Or is it “uncertainty” that is making companies like Apple and Google hold large amounts of cash rather than putting out new products?

TallDave January 8, 2013 at 11:27 am

In the non-strong-Keynesian view, government wasting more money doesn’t maximize overall prosperity.

If there is a liquidity problem (and there seems to be) the proper solution is monetary, not fiscal. The best policy is probably NGDPLT. Scott Sumner has written a lot of very persuasive arguments in this vein. I recommend his blog.

Michael Sankowski January 8, 2013 at 2:52 pm

I am just asking for a number, Dave. How much growth would hitting the debt ceiling create? If shutting down inefficient government spending would cause growth, how much growth can we expect in March, April, and May of 2013 due to hitting the ceiling?

Note, expectations have already kicked in – the percentage of hitting the ceiling is non-zero. We should be getting a strong boost to the economy right now.

TallDave January 9, 2013 at 2:44 pm

You mean, as opposed to if the government continues wasting money on things people don’t want but that get counted in GDP as though someone had paid for them out of their own pocket?

At current levels of spending (around 40% of GDP), perhaps five to ten dollars over ten years for every dollar not spent by government this year.

No one is currently expecting large spending cuts for this year.

Michael Sankowski January 10, 2013 at 9:11 am

Here, I’ll do it for you.

Well, spending on those items would carry a multiplier that would increase growth by cutting that spending, right?

You’re claiming the multipler on this is below 1, because the spending is so terribly inefficient. The spending by the government of $1 only gives us perhaps $.50 of GDP countable economic activity – the government spending destroys more real world valuable goods and services than it creates.

So shutting off $100bn of spending should increase GDP by maybe $200bn PER MONTH because shutting off the wasteful, inefficient government spending frees up these resources to focus on productive segments of society.

The expectations for this should be kicking in already – hiring should already be starting, gearing up for the massive economic boom we can expect from hitting the debt ceiling.

TallDave January 8, 2013 at 11:37 am

(BTW iirc Apple and Google (and others) hoarding cash is something Scott has talked about — if we have easy money today, why are companies sitting on cash, which should be a terrible strategy? The answer is, we don’t have easy money, we have low interest rates and a lot of ZLB weirdness that policymakers are having trouble interpreting correctly. The NGDPLT model wins again.)

MikeDC January 7, 2013 at 9:11 pm

There’s no reason all spending should stop. The government will still take in revenue, and can still roll over existing debt. So some spending would have to stop.

Steve January 7, 2013 at 10:38 pm

Seems like that “uncertainty” everyone said was holding back the economy is going to be at an all time high if we hit the debt ceiling. Should be fun times in the US of A…

Mike Sankowski January 7, 2013 at 11:45 pm

Still no math. Com’on Dave.

Andrew' January 8, 2013 at 7:59 am

Short-term, somewhere in the range of 40% of the budget would have to stop being funneled as cash transfers from some people to other people. That would probably disrupt some short-term economic plans. However, long-term reducing wealth transfers would probably improve the economy.

Jim Ancona January 7, 2013 at 5:32 pm

I see a number of people on the “pro-coin” side here arguing that, in the absence of a debt limit increase, the only alternative would be default. To me, it seems much more likely that the administration would simply stop paying some bills in order to temporarily balance income and expenditures and thus avoid exceeding the debt limit. Since they would have great discretion as to which bills not to pay, I imagine they would tailor the cuts to maximize the political pain to opponents of the debt limit increase. Imagine the possibilities: Stop paying businesses in Republican house districts and red states. Or close the national parks and DC attractions. Even delay SS checks. I expect such a strategy would rapidly lead to a settlement more-or-less on the administration’s terms.

Would someone who believes that a debt limit crisis will inevitably lead to default be so kind as to explain what’s wrong with my reasoning?

msgkings January 7, 2013 at 5:49 pm

There’s nothing wrong with your reasoning, it’s the exact script we saw in 2011. We’ve seen this movie before. I just hope this time there’s some spending cuts.

8 January 7, 2013 at 6:21 pm

National parks and some departments closed in 1995. I remember the media mostly covered protests and out of work people in DC. One day, NBC went to somewhere like Iowa and asked everyone how the government shutdown was affecting them. No one even knew it happened. People on the pro-government side really overestimate how much the government matters. Maybe they are afraid of riots, as many blue voters are packed into cities, but the government could shut down and much of the country would never notice. And then there’s all the people who say, out of fear of EPA regulations, will quickly begin developing their land while the regulators are laid off.

Ricardo January 8, 2013 at 1:47 am

People on the “anti-government side” really overestimate how much things like national parks and “some departments” cost. Of course, if you cut programs or services that don’t reach many people and don’t cost very much, you haven’t affected the sorts of people who read very much in the short-run but you also haven’t done anything substantive about the overall magnitude of government spending. Close down a bunch of military bases, cancel huge contracts with Lockheed-Martin and Boeing, and stop sending out SS checks and Medicare and Medicaid reimbursements to doctors and people are going to notice pretty damned fast.

That said, libertarian heroes like Ron Paul and Paul Ryan never fail to bring the pork home to their constituents. If this spending doesn’t matter much, why does pretty much every politician with real world experience in contesting elections appear to disagree in practice?

TallDave January 8, 2013 at 12:57 pm

“libertarian heroes like Ron Paul and Paul Ryan never fail to bring the pork home to their constituents.”

That’s like noticing that even left-wing heroes like Nancy Pelosi and Harry Reid never pay more than their minimum tax due, and concluding on that basis that everyone wants to lower taxes.

Also, the House did pass the first-ever ban on earmarks. And no one on the left seems to realize they passed several budgets with major spending cuts, which died in the Senate.

Jim Ancona January 7, 2013 at 7:00 pm

So do I, but I see no evidence that either party in Congress actually wants real cuts. So I don’t hold out much hope.

TallDave January 8, 2013 at 12:59 pm
Roy January 7, 2013 at 6:05 pm

So Tyler, with the stupid Qutb joke are you signalling that you actually don’t agree that the economics of the platinum coin are similar to Al Qaeda?

maguro January 7, 2013 at 7:30 pm

Why does it have to be a coin? How would minting the coin be any different than just printing up a 14 trillion dollar bill?

Cyrus January 7, 2013 at 8:02 pm

Congress has not authorized the Treasury to print arbitrary amounts of paper money. Congress has not authorized the Treasury to mint arbitrary amounts of coinage, either, except that Congress left open a loophole for commemorative platinum coins of arbitrary denomination.

The point of the Magic Coin is that it’s something the Executive can try do without cooperating with Congress or the Fed.

Morgan Warstler January 7, 2013 at 7:43 pm


Congress has to decide / vote on who to put on the coin. Right?

ricardo January 7, 2013 at 8:18 pm

Ah, got it. Nice one.

Claudia January 7, 2013 at 9:40 pm

Does anyone else find this curious? Not a week has passed from the fiscal cliffhanger and now it’s ‘the super coin’. I understand the principle of’never let a crisis go to waste,’ but since when do we need to engineer a crisis to get work done…work that has been foreseeable for some time? Crises can have negative effects on the economy, so this seems risky trend. I find the debate over whether this is the coin or hitting debt ceiling is desirable to be tiring. Of course, they are both bad ideas, and they also seem to be lead weights in the budget discussions. Plus when economists start telling jokes it can get ugly and lame fast.

jorod January 7, 2013 at 10:00 pm

The government is the enemy of taxpayers and responsible people everywhere.

acarraro January 8, 2013 at 7:57 am

I would like to know what alternative solution there is to using the coin.

I would think that the President deciding who gets paid is even a bigger breach of the power of congress. It seems to me that the coin is the smaller distortion… At least there is a law which allows it, while there are clear laws prohibiting executive discretion in the application of the legislation…

I also think that it’s wrong to say that there would be no default. I don’t think government bonds are actually senior to other liabilities, so I doubt deciding to stop paying other expenses is legal at all. There are contracts between hospitals and the government for Medicare patients for example. Not paying for the incurred fees is as much a default as not paying a bond coupon. I am pretty certain a hospital could get a court to stop payments to bondholders if the president were to decide to prioritize those debts over others.

acarraro January 8, 2013 at 8:50 am

Actually the best argument in favour of the coin is that it doesn’t stop a government shutdown.

Congress needs to pass a continuing resolution (renew the previous budget basically) to appropriate further spending. Refusing to pass that law would achieve the same objective as the debt ceiling without some of the nasty consequences of not paying for debt already incurred.

If the republicans don’t want to spend more money, they should refuse to pass the CR. The president would have no authority to ignore that. SS and Medicare would still have to be paid, but any other spending would stop.

I think that’s a tenable position. Refusing to pay what you agreed to pay already it’s not…

The Anti-Gnostic January 8, 2013 at 9:19 am

Of course the coin option wouldn’t work, because everybody knows that a few ounces of platinum aren’t worth $1 trillion, just like everybody knows the US Eagle isn’t worth $50.

But then, I’m also of a mind to say, “Of course printing money to buy your own debt wouldn’t work,” or “Of course going into debt to pay off debt wouldn’t work,” and so far people are still taking dollars.

I say give the coin a shot.

MikeDC January 8, 2013 at 9:56 am

How do the mechanics of this work for the Fed by the way? I haven’t heard anyone explain why the Fed would be amenable to buying a $1T coin from the Treasury. The Fed has been adding to its balance sheet by buying what, $40-$60B a month securities? So this would constitute a massive increase (over a year’s worth in a month) in the amount of debt it issues.

Yes, it gets that $1T coin as an asset on the other side of its ledger, but that’s a very different sort of “asset” than the bonds it’s normally buying when it generates more Federal Reserve Notes. The bonds remain fungible, sellable assets. The $1T coin is basically a fiction though, and they can’t do anything with it.

That is, at least notionally, the Dollar is not quite a fiat currency, because it’s exchangeable at its source for another asset (the assets the Fed is holding). All dollars generated by the Fed are offset by fungible assets purchased by the Fed with those dollars. But since the $1T coin is not really a fungible asset, it just constitutes a massive devaluation of the dollar as Federal Reserve Note.

Which, of course, also means a massive devaluation of the assets held by the Fed to offset that debt. Which, of course, leads to people around the globe running scared from the US dollar and US debt.

In reality, there’s no difference between paying back $0.90 of every dollar owed on a bond or paying back $1.00 by Banana Republicing the dollar supply without an offsetting purchase of assets, thereby leading to an exogenous devaluation of the currency.

Either way, the bond holder is getting screwed relative to their expectation when making the loan in the first place.

DocMerlin January 8, 2013 at 10:21 am

I should hedge against this event by buying bitcoins.

JasonL January 8, 2013 at 11:41 am

I can’t help but be annoyed every time anyone invokes the debt ceiling as the Form of the Destructor. It isn’t. There is no default on actual debt under any outcome of a debt ceiling discussion you could imagine. The creditor all know that. There is no default. There is no threat of default. There is a possibility that domestic spending would have to be cut, and raise your hand if you think that will actually happen. Nobody nobody nobody believes even that would actually come about. What roils the markets is the obvious ineffectiveness of congress critters and the administration in dealing with fiscal matters. Viewing the discussion this way, the platinum coin would be not a way around some grand crisis, but further evidence of disfunction. I think it would have exactly the opposite effect those proposing it would hope – people would be less confident that our elected leaders will ever do anything that makes fiscal sense.

MikeDC January 8, 2013 at 12:59 pm

There is no threat of default.

Well, that’s not true because once we borrow up to the debt ceiling, we really move into pretty uncharted territory. The President is legally obligated to service the existing debt, but he’s also legally obligated to spend the money he has in the manner Congress has appropriated the funds to. So… it’s kind of an open question as to what takes priority.

The President could take the “standard” approach, prioritize the government’s creditors, and then distribute the rest evenly (every one takes a hit). Or he could, I guess prioritize some programs over the other. Or he could tell the bond holders to F off and instead prioritize paying social security checks.

Alternatively, the Congress could pave the way by passing a law clarifying the legislative priorities in the event we hit the debt ceiling. IE, Congress establishes the priorities.

As far as I understand, neither the President nor Congress (or parties within Congress) have done anything in the way of establishing this sort of plan. As best I can tell, the President has made it sound as scary as possible, and basically implied that he would either ignore Congress and continue to spend or cut in ways that hurt people most.

Were I the Republican members of Congress, I’d bring a bill to the floor immediately and as publicly as possible required the Executive to prioritize spending in the event of exhausting his authority to borrow. Something like:
1. Strategic defense (nuclear weapons)
2. Ongoing military operations*
3. Servicing existing debt
4. Social Security and Medicare
5. Everything else

would cover it. And while the President’s shit doesn’t seem to stink no matter what he does, I have to think a high-profile abject refusal on his part to do this would be very unpopular.

* Bonus points (and possibly Democratic support) if you do not prioritize ongoing military operations, except immediate withdrawal of US Forces from war zones. That is, you we go over the borrowing limit, we’re only going to pay to bring the troops home (pronto). This obviously won’t happen, but should.

Dick King January 8, 2013 at 4:16 pm

Wouldn’t ordinary Social Security get paid even we’re at the debt ceiling, as long as the trust fund is non-empty?

The SSA cashes in the required bonds from the trust fund, which the government can pay because the cashing in reduces the amount of debt outstanding.

The maturations of the bonds in the trust fund have to be right, so this won’t work if the government intercepts the FICA payments and uses them for purposes other than paying SS benefits, because the SSA [probably] doesn’t have enough bonds maturing this March to pay ALL SS benefits, just enough to meet the expected shortfall from FICA payments plus a bit more.


Kevin January 9, 2013 at 7:34 am

Sen. Toomey has proposed something like this, but it would never get to Obama’s desk because it could never pass the Senate. If the Republicans controlled both houses of Congress they could do it, of course, but they might face a presidential veto. If they had enough seats that they could override the veto they wouldn’t need the tactic — they’d just pass the budget they wanted.

The deficit hawks in the House are trying to use the debt ceiling to pass an agenda which could never get through in the traditional way. It’s possible that the GOP leadership is using this fracas to enhance its bargaining position, and all of the worst-case scenarios are basically chatter. It’s crazy for deficit hawks to think that they should get most of what they want.

MikeDC January 9, 2013 at 3:43 pm

I understand that the Democrats in the Senate wouldn’t agree and Obama would veto it. But…

… the point I’m making is this iis a political battle. Make a loud and public show of it, and the Democrats and Obama have to loudly and publicly kill a bill that is imminently sensible on its face.

Anders January 8, 2013 at 3:58 pm

This reminds me of that episode of the Simpsons where Mr. Burns steals the trillion dollar bill that Truman printed to go to rebuilding Europe.

Barkley Rosser January 8, 2013 at 4:18 pm

The debt ceiling is idiotic and unconstitutional and should be shut down once and for all. Obama should declare it so under the 14th Amendment, but at least partly because his old constitutional law prof at Harvard, Lawrence Tribe thinks it is constitutional, plus Obama is probably not up for the court fight and possibly impeachment vote that might follow such an effort, he probably will not do it. Defaulting would be disastrous. The coin thing is gimmicky and juvenile as Salmon says, and would also probably face a court challenge as well, if weaker than the on one invoking the 14th Amendment, but it would be superior to actually defaulting, which we came very close to August 2011.

TallDave January 9, 2013 at 2:45 pm

Barely a single word of that was accurate.

Harun January 9, 2013 at 1:46 am

Could we not mint such coins and use them to pay off the interest from foreign T-bill holdings?

I guess my question, is who pays that interest, the Treasury or the Fed. The Treasury, right?

And if they can mint such coins, they could essentially use them to pay interest on the debt, and even, the final principal, no?

Gary Haman January 11, 2013 at 10:34 am

This country’s assets encompass all of the physical property to include Federal lands, energy resources, and man made construction. The government owns the precious metals that is has stored as well, but they have chosen to create paper money as a representative value for a medium of exchange for all debts. If it wanted to straighten out this economic mess, they could go back to a “dollar” backed and secured by intrinsically valued materials to include Gold, silver, precious jewels, and Platinum (which is valued at less than gold). The ” borrowing from Peter to pay Paul” unlimited credit sindrome has lead the whole country down the path to ruin. half of the people in this country have no qualms preventing them from borrowing whatever they want. If they can’t pay it back, they just declare bankrupsty! Extending a “debt ceiling” has been the American way of life!

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