Treasury Rejects Platinum Coin Ploy

Paul Krugman and Larry Tribe may think minting a platinum coin to evade the debt ceiling is legal, but the Department of the Treasury thinks otherwise, according to this report from Ezra Klein. According to

The Treasury Department will not mint a trillion-dollar platinum coin to get around the debt ceiling. If they did, the Federal Reserve would not accept it.

That’s the bottom line of the statement that Anthony Coley, a spokesman for the Treasury Department, gave me today. “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,” he said.

The inclusion of the Federal Reserve is significant. For the platinum coin idea to work, the Federal Reserve would have to treat it as a legal way for the Treasury Department to create currency. If they don’t believe it’s legal and would not credit the Treasury Department’s deposit, the platinum coin would be worthless.

In other words, Treasury believes the coin gimmick would be both illegal and improper, according to its spokesman. That would seem to settle the matter. Tom Maguire has more.

It is both significant and commendable that the Obama Administration has ruled out gimmicks (the coin) or unprecedented assertions of executive power (unilaterally rejecting the debt limit). This does not mean the President is without options, however. Should Congress fail to increase the debt ceiling, the President will still be obligated under the 14th Amendment to pay the federal government’s debt obligations, so long as revenues exceed such obligations. Insofar as there are insufficient revenues to satisfy other obligations — i.e. to pay for all the other things that Congress has authorized — the President will have to set priorities. As Michael McConnell explained last summer:

If we reach the debt limit, the Treasury will be compelled to reduce spending (other than payments on the public debt and pensions) to bring current expenditures in line with current receipts, just as a family has to do when it has maxed out on its credit cards. Presumably, the executive branch will have to make the tough decisions about priorities. No law exists to guide the process. In theory, essential services and payments will keep flowing, and less essential services and payments will be postponed. In practice, if history is any guide, politicians in the executive branch will find it more in their interest to shutter the most conspicuous and painful services first – this is called “closing the Washington Monument” – to maximize public pressure to increase the limit. It would be a crying shame if the executive stopped funding truly inessential services and programs, and no one (other than the immediate beneficiaries) noticed.

A wise and prudent President could use the occasion of hitting the debt ceiling to trim waste and excessive spending from the budget. This would not solve our long-term fiscal problem (that will require structural reform in entitlement programs coupled with measures to increase economic growth), but it would signal to the bond markets that we are serious about grappling with the spending mess. Waste and abuse are like the weather. Everybody talks about it, but nobody does anything about it. Indeed, in ordinary times the Impoundment Control Act (an unfortunate piece of legislation passed in response to Nixonian abuses) requires the executive to expend all appropriated funds, and thus prohibits the executive from postponing or cancelling non-essential spending, however wasteful. But the debt limit takes precedence over the Impoundment Control Act, especially in light of the Fourteenth Amendment’s prohibition of “questioning” the validity of the debt, which means the President can trim spending to the extent that appropriations exceed revenues. A President serious about controlling spending would find this an opportunity for leadership.

Thus, the real effect of Section Four of the Fourteenth Amendment is almost the opposite of what hopeful voices in Washington are saying. Section Four puts the onus on the President to reduce spending in order to avoid default on the debt. It does not permit him to borrow more.

UPDATE: Buzzfeed reports the Federal Reserve killed the coin idea.

Meanwhile, the Senate leadership urged the Administration to act unilaterally if necessary. (Letter here.) As noted above, unilateral action need not mean resort to the coin ploy or asserting authority under the 14th Amendment to issue new debt. And, in confirmation of Kerr’s law, Byron York reports all four signatories of the letter voted against increasing the debt ceiling in 2006.