|The U.S. hit the current debt ceiling on December 31 and will have to take drastic measures to keep the government running without some action by Congress or the Obama administration to raise the debt ceiling before the end of February. Default would be a bad scenario on many levels.
Some have argued that the president could get around Congress by invoking the 14th Amendment to the U.S. Constitution, which states, "the validity of the public debt of the United States, authorized by law ... shall not be questioned." House Minority Leader Nancy Pelosi favors this scenario. But law professor Laurence Tribe doesn't consider the 14th Amendment a viable option for avoiding a debt ceiling fight. Today White House spokesman Jay Carney ruled out the 14th Amendment solution but did not rule out minting a platinum coin.
For some reason, Congress did not limit the Treasury secretary's power to "mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary's discretion, may prescribe from time to time."
Maybe this language reflects a drafting error, or maybe members of Congress had some other purpose behind the wording. Presumably they did not imagine the the president could use this authority to circumvent a bill from Congress raising the debt ceiling. Then again, until recent years raising the debt ceiling was an uncontroversial bipartisan routine in Washington.
Tribe commented to the Washington Monthly's Ryan Cooper,
I don't think it makes sense to think about this as some sort of "loophole" issue. Using the statute this way doesn't entail exploiting a loophole; it entails just reading the plain language that Congress used. The statute clearly does authorize the issuance of trillion-dollar coins. First, the statute itself doesn't set any limit on coin value. Second, other clauses of 31 USC §5112 do set such limits, but §5112(k)-dealing with platinum coins-does not. So expressio unius strengthens the inference that there isn't any limit here. [...]
It's also quite clear that the minting of such a coin couldn't be challenged; I don't see who would have standing.
Donald Marron of the Tax Policy Center explains here that the "legal arguments against it [minting the coin] are weak at best." House Republicans seem to recognize that, because they are drawing up a bill to prevent the government from minting high-denomination platinum coins.
That leaves only political and economic arguments against using this gimmick. Josh Barro of Bloomberg News refutes some of those arguments here. Paul Krugman made a good analogy:
Here's how to think about that: we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he's holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac - a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, "My god, we can't dress the secretary up as a clown!" Even when it will make him a hero who saves the day? [...]
What the hysterics see is a terrible, outrageous attempt to pay the government's bills out of thin air. This is utterly wrong, and in fact is wrong on two levels.
The first level is that in practice minting the coin would be nothing but an accounting fiction, enabling the government to continue doing exactly what it would have done if the debt limit were raised.
Remember that the coin is supposed to be deposited at the Fed, which is effectively just a semi-autonomous government agency. As the federal government proper drew on its new Fed account, the Fed would probably respond by selling off some of its $3 trillion balance sheet. In effect, the consolidated federal government, including the Fed, would be financing its operations by selling debt instruments, just as always.
Kevin Drum of Mother Jones compares this scenario to "fever swamp thinking" on the level of the tea party. But I think Barro makes a much stronger case.
Speaking of which, I loved this post by Barro on why "The Federal Government Is Not a Small Business."
The mistaken idea that federal economic policy should be driven by the same internal logic as corporate or household budgeting has led to some of the worst ideas of the last few years, such as that governments should respond to budget deficits created by the economic cycle with tax increases and spending cuts.
The federal government isn't a small business, and it has different purposes and different constraints than small businesses do.
Amen to that.
UPDATE: Interesting piece on the origins of the platinum coin scenario.
SECOND UPDATE: Yet again, Obama unilaterally gives up leverage ahead of a showdown with Congressional Republicans. Treasury rules out trillion-dollar coin:
"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," said Treasury spokesman Anthony Coley in a statement obtained by TPM.
The White House has also previously ruled out invoking the 14th Amendment to bypass Congress and raise the debt ceiling unilaterally.
"There is no backup plan," said White House Press Secretary Jay Carney earlier this week. "The only option is for Congress to do its job."