WASHINGTON – As you probably know, sometime in late February or early March the government’s authority to borrow money will run out, rendering the Treasury unable to pay everyone all the money they’re owed. Conservatives have vowed to use this leverage to force the president to agree to spending cuts he wouldn’t otherwise sign, a replay of a move they pulled off in 2011.
Already Republicans such as Sen. John Cornyn, R-Texas, are trying to lay the groundwork by describing an exhaustion of borrowing authority as a kind of government shutdown rather than what it really is, a congressionally induced default on legally valid claims Congress has already enacted.
There are several potential ways to avert catastrophe. My Slate colleague Eric Posner, for example, insists that the president has the authority to raise the debt ceiling unilaterally. And even if he doesn’t, a ludicrous but perfectly legal solution is also available to him. The treasury secretary can order the United States Mint to create large-denomination platinum coins — a $1 trillion coin, say, or a bunch of $10 billion coins — and use them to finance the government.
It all goes back to sub-section (k) of 31 USC section 5112, “Denominations, Specification, and Design of Coins.” The opening subsections of this U.S. code consist of boring specifications about the coins the United States issues. Subsection (k) says “The Secretary may 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.”
So there it is in black and white. The Mint can create a $1 trillion coin. Then the treasury secretary can walk it over to the Federal Reserve and deposit it in the Treasury’s account. Then the government can keep sending out the checks — to soldiers and military contractors, to Social Security recipients and doctors who treat Medicare patients, to poor families getting Supplemental Nutrition Assistance Program and to FBI agents — it’s required by law to send — and the checks will clear. It’s a simple, elegant solution.
Naturally, people have doubts. Is a $1 trillion coin really what Congress meant when it passed the law? No. Just ask former Rep. Mike Castle, R-Del., who’ll tell you he just wanted to make it easier for the government to earn a few quick bucks selling novelty coins to collectors.
But lawyers assure me this is irrelevant. Legislators’ subjective intent is sometimes relevant in the case of ambiguous statutory language, but the law plainly grants the secretary unlimited discretion. And, indeed, it’s clear enough that Castle meant to provide discretion — just not for this purpose.
Which leads to the second objection: Isn’t this an insane power-grab? Not really. It doesn’t otherwise change the law. If President Obama wanted to increase Social Security benefits, he would need Congress to pass a law. Absent new laws, entitlement programs will run on autopilot and discretionary programs will spend what Congress has appropriated and nothing more.
Platinum gimmicks don’t change that, they only ensure that Treasury can pay the bills it’s already legally required to pay.
Also, there’s no reason this would need to be inflationary. The Fed has lots of bonds and other financial assets on its balance sheet as a result of various quantitative easing programs. It can sell bonds, therefore withdrawing money from circulation, to offset the new money being created here.
Another objection is that it creates a bad precedent, but that’s backward. The bad precedent was created in 2011, when the Obama administration and House Speaker John Boehner engaged in long fruitless negotiations over a grand bargain. The threat of default killed consumer confidence, we were left with the “fiscal cliff” as the legacy, and now we’re doing it all over again. Entrenching the principle that brinksmanship is how the American Congress operates would be dangerous and irresponsible.
Similarly, while obviously the coin trick sounds silly, it’s nothing compared to the silliness of a sovereign country that issues its own currency defaulting on legally valid financial obligations. America needs political institutions that work in a climate of partisan polarization, and the debt ceiling doesn’t fit the bill.
And this, in many ways, is the best possible reason to mint the coin. It’s so absurd that it’s bound to prompt a backlash.
Rep. Greg Walden, R-Ore., is already talking about a bill that would close the platinum loophole. It’s a perfectly reasonable idea, and the Obama administration should be happy to agree to do it. If, that is, Congress agrees to close the loophole that lets it pass tax and spending bills that make a budget deficit necessary and then refuse to allow the borrowing to finance that deficit.
In other words, kill the loophole in exchange for eliminating the statutory debt ceiling.
In the future, the government will spend what Congress tells it to spend and collect the taxes Congress tells it to collect and rely on borrowing rather than platinum to fill the gap. That’s how it ought to work, and it’s how it has worked in practice for decades.
Turning the gap into a forum for high-stakes legislative brinksmanship was a terrible idea. But now that it’s happened, we can’t just exhort congressional Republicans to start being nicer.
We need concrete action, and silly-sounding though it may be, the platinum coin fits the bill.
Matthew Yglesias is Slate’s business and economics correspondent. Before joining the magazine he worked for ThinkProgress, the Atlantic, TPM Media and the American Prospect. His most recent book is “The Rent Is Too Damn High.”