fiscal policy

Disconnect: High Value Platinum Coin Vs. Austerity!

Joseph M. Firestone — Tue, 15 Jan 2013 22:12:15 -0500

A little disconnect: what President Obama, through Treasury and the Federal Reserve, really said last Saturday:

"We're running out of money because the Republican House may not allow us to float any more debt; so I took the Platinum Coin off the table just to ensure that we would!

Next month, I'll give you the gift of austerity, because, naturally, we're now really gonna run out of money!"

Despite Saturday's announcements by the Treasury and the Fed the Platinum Coin Seigniorage (PCS) legislation is still on the books. For the President not to use it to fill the public purse with enough funds to banish the fiscal conditions that underlie austerity politics -- the national debt, and the ability to cover the deficit for a long time to come -- is inexcusably corrupt, fiscally and economically irresponsible, and completely opposed to the public purpose that the President is supposed to serve.

So, I want to tell the President that for as long as PCS is on the books, and he and others are claiming that we need austerity because we are “running out of money,” he has the duty and the obligation to mint a game-changing High Value Platinum Coin, for example, a $60 T platinum coin. After this legal tender coin is credited by the Fed, the presence of $60 T in the Treasury General Account (TGA), and its immediate use to begin paying off the national debt, will make it very plain that there is no need for austerity; no need to cut SS, Medicare, and Medicaid; no need to cut Head Start, no need to cut anything that's working.

Yesterday, the White House line was that temporary fixes to the debt ceiling problem like the platinum coin would not solve the budgetary and political problems faced by the Government. Our mainstream media people did their thing by failing to call out the President on that – probably because they, themselves, have never dared think about any other PC option apart from the Trillion Dollar Coin. It's easy to see, however, that a $60 T coin wouldn't be a “temporary fix,” spawning crises every few months, even if it wouldn't last forever. The fact that a $1 Trillion Dollar Coin would not solve our debt ceiling problem for very long, isn't an argument for taking High Value PCS (HVPCS) off the table at all.

So, I call on the President to mint that $60 T coin now! I call on him to abandon austerity and to create financial plenty in Federal fiscal policy by using game-changing HVPCS. Austerity and “grand bargains” are “the great betrayal!” We don't need such “greed bargains.” We need a full public purse, and then we need to get Congress to open the purse for programs that fulfill public purpose.

I call on others to join me in beginning again to blog, comment, facebook, and tweet about PCS; but this time to forget about the TDC, which was always the wrong coin, and focus on #minttheHVPC instead.

Up the ante! Make this about ending austerity, and using the right platinum coin to create the political space needed for doing it! Forget about them taking PCS off the table! As long as it's legal it's still on the Table! Mint that HVPC! End Austerity!

(Cross-posted from Correntewire.com.)

I Still Choose Using High Value Platinum Coin Seigniorage To End Austerity!

Joseph M. Firestone — Mon, 14 Jan 2013 12:11:30 -0500

Yesterday, Ezra Klein reported in the Washington Post that:

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.

This statement from Ezra Klein would have us believe that the Federal Reserve is an independent agent in this matter, and that it can refuse to credit the deposit of a newly minted high face value proof platinum coin, if the Treasury makes such a deposit. It also assumes that if the Treasury insisted on the deposit of the coin, that the Fed would be in a position to go Court to contest that; that it has a choice in the matter.

I don't believe that either of these things are true. I also think they are just a rationalization, so the President, who most probably decided this can pretend that this decision isn't on him; or at least can be partially blamed on the Fed. Let's review some critical aspects of the relationship between the Fed and the Treasury.

Fed Independence?

First, here are a some quotes from the US Code and comments.

"…banks, when required by the Secretary of the Treasury, shall act as fiscal agents of the United States; and the revenues of the Government or any part thereof may be deposited in such banks, and disbursements may be made by checks drawn against such deposits."12 USC 391

The coins are legal tender, and disbursements can't be made unless a deposit is credited. So, both imply that all banks that receive such deposits must credit them, and that the Bank officers at the New York Fed cannot refuse to credit the face values of a deposit of coins by the US Mint in its Public Enterprise Fund (PEF) Account. As for the Board of Governors, including the Fed Chair, forbidding the New York Fed from crediting the deposit, there is this part of the USC:

". . . wherever any power vested by this chapter in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary." 12 USC 246

The US code says that the Secretary has supervision and control, not the Fed Chair, or the bank officers at any of the banks, however exalted, within the Fed system. So, if anyone in the Fed system wants to go to Court about this; it's hard to see that they could get standing even to file an injunction. In fact, if they attempted to get an injunction and to sue after a Treasury order prohibiting them from doing that, apparently the Treasury Secretary could fire the offending parties if “supervision and control” means what it usually means.

In short, the Platinum coin is still on the books. The legal rationalizations of the Treasury and the Fed are a smoke screen to obscure the President's deciding not to use the authority he is granted by the Platinum Coin Seigniorage (PCS) legislation. And finally the coin certainly would work if the President decided to use it, provided he ordered the Secretary to mint and have a platinum coin deposited in the Mint's PEF at the New York Fed; and provided the Secretary sent instructions to the New York Fed and the Board of Governors ordering that the coin be credited and no attempts be made to contest the Secretary's action in a Court of Law.

The Wrong Kind of Coin

After a hiatus of 16 months the Trillion Dollar Coin (TDC) surfaced again in the mainstream blogging and MSM World at the beginning of December. The outbreak of posts and discussions was fairly intense as people began looking beyond the “fiscal cliff “crisis and started looking ahead to the debt ceiling fight to come. During the second half of December however, posts and commentary slowed as we got closer and closer to the “cliff,” and most commentary focused on that.

But at the beginning of the New Year, after the 'cliff” was partially deflated, new posts from mainstream bloggers on the possibility of minting a Trillion Dollar Coin (TDC) to avoid the debt ceiling appeared, including a post from Paul Krugman. In addition, Jerrold Nadler (D-NY) became the first Congressman to advocate for the TDC to get around the debt ceiling, the TDC was suddenly ubiquitous on MSNBC, and began appearing on other networks as well.

The ground swell for the TDC continued through the first week of January and kept growing larger and larger facilitated by the #minthecoin twitter campaign. The hashtag #mintthecoin was originated By Stephanie Kelton of the Economics Department of the University of Missouri at Kansas City. Joe Wiesenthal, blogging at Business Insider, picked it up, used it to name a White House petition, and marketed a viral petition drive urging the President to mint a TDC and use it to pay down debt so the debt ceiling could be avoided.

The twitter campaign became a phenomenon and a trending topic, accompanied by more and more blog posts across the political spectrum, both pro and con, about using the TDC. Signatures on the petition grew fast, finally resulting in questions at White House news conferences about the TDC, asking whether the President was going to use it or had considered it.

Increasingly, after January 5th, the platinum coin was everywhere even getting covered by the Colbert show. Finally, on June 12, as the web frenzy continued to grow and after a very notable panel discussion of Platinum Coin Seigniorage on Chris Hayes's Up show, including both Wiesenthal and Kelton, among others, this past Saturday morning at MSNBC, the Treasury and the Fed tried to put an end to speculation by announcing that the Administration would not mint the coin.

So, now the web echos with cries that the platinum coin is dead, some of the cries are joyful. Some of them are angry. Perhaps they're right. Perhaps the coin is dead. But perhaps also it will come back again, in a new guise, when conditions are right. How can that be?

Well first, we need to recognize that the TDC, with its intense and frenzied web-based campaign was based on the wrong coin and the wrong cause. The cause or the problem it was addressed to was getting past the debt ceiling by creating some head room below it with the seigniorage proceeds. After that, the TDC bloggers envisioned that deficit spending would continue to require issuing debt instruments, and that there would be no further “disruption” in the normal way of doing things, and also that the President would cope with the coming sequester, and continuing resolution (CR) conflicts separately.

So, the TDC, even if used, would really change very little. It wouldn't stop the Republicans from pursuing spending cuts in entitlements and important discretionary programs. It wouldn't change the fundamental drive for austerity in both parties, fueled as it is by the view that “national debt” is both frighteningly large, and also unsustainable. So, at best, the TDC was a tactic to put off the day of reckoning with the Republicans, and perhaps to use the law authorizing it as the basis for a swap with the Republicans of the PCS legislation for the debt ceiling law, a very silly and odious idea proposed by a mainstream blogger, wanting to return the system to “normal” but not change it.

Considering this background, it is easy for the President to say that we won't use PCS. Maybe not as easy he would have liked. But still the TDC was only a tactic. The President can abandon it and talk about other tactics, or his apologists can talk about his desire to avoid default by having a government shutdown that will break Republican resistance, as President Clinton was able to do. If they and he can do that for long enough, then the President can keep Democratic Congresspeople in line for as long as it takes for him to make his “grand bargain” for austerity with enough Republicans to join with the supine Democrats to pass it.

Even though I have blogged more frequently about PCS than anyone, I have never been for minting one TDC and returning to normal Treasury/Fed procedures for deficit spending. I have always proposed substantial and significant change in the financial system, change that would end with paying off the national debt, and with destroying the underlying political rationale for austerity based on the debt and the related idea of fiscal unsustainability.

During the whole current TDC campaign I have blogged constantly about High Value Platinum Coin Seigniorage (HVPCS) and its potential for changing the fiscal and political landscape and destroying the basis for austerity politics, while changing the game radically for progressive attempts to create greater economic and social justice. I referred to HVPCS as the big story the mainstream was missing, and also as game-changing PCS that would change the context of politics.

I believe that if the MSM bloggers hadn't set up one of their usual “only talk to fellow villagers” echo chambers, but instead had embarked on an honest discussion of PCS options, they would have ended with a groundswell of support for HVPCS to fight austerity and that idea, since it is more strategic than tactical, would have been much harder for the President, Geithner, and Bernanke to dismiss, after a campaign that had identified it as the way out of austerity for the United States.

The President must, if he's going to be successful in making the “grand bargain” continue to present himself as preferring not to make serious cuts to entitlement and other valued domestic programs, unless the Republicans “make him do it.” To the extent possible, the Democrats who will support him, also want to deny responsibility for the actions they will take. For the President and his Democrats to be seen as forced into the “grand bargain,” the President cannot be seen as acting to take an important way out of the austerity trap “off the table.” And that is what he would have had to do if the TDC campaign had been replaced with an HVPCS campaign sold as an answer to austerity.

The MSM and the blogosphere generally have missed the chance to generate such a campaign with the really heavy pressure it would have placed on the President and the Democratic Party. That is its failure; yet another disservice to the American people by the MSM Press.

The Right Kind of Coin

I've been blogging about the right kind of coin for a long time now, and very frequently since the latest wave of PCS began in December. That kind of coin is a platinum coin with a face value of $60 T. Why $60 T? Because that's the face value needed to pay off the national debt, and to cover deficit spending for 15 – 25 years, enough time to educate people about the nature of fiat money and the desirability of changing the current financial system so that the Federal Reserve is reorganized as part of the Treasury Department, and the Treasury's authority to create reserves as it spends, without either debt financing or seigniorage, is recognized as the way things ought to be done.

The idea that after Congress appropriates money for Federal deficit spending, that spending can only occur if and when the Treasury can raise the money, is a hangover from gold standard days and ridiculous for a fiat sovereign government like the United States. The authority to spend should be delegated by Congress to the Treasury at the point appropriations are approved.

Appropriations are a mandate on the Executive; that mandate, in a sane nation, would be accompanied by the delegation of the authority to fulfill the mandate. That is the system we should eventually have because it is the only one that makes any sense and that can keep both the Executive and Congress accountable for their actions.

But until Congress passes legislation creating that system, it ought to be recognized by all that the PCS legislation is on the books, and that for the President not to use it to fill the public purse with enough funds to banish the underlying fiscal conditions that underlie austerity politics, the national debt, and the ability to cover the deficit for a long time to come, is inexcusably corrupt, fiscally and economically irresponsible, and completely opposed to the public public purpose that the President is supposed to serve.

So, I want to tell the President that for as long as the PCS law is on the books, and austerity is impending, he has the duty and the obligation to reject it and to mint a game-changing PCS solution using a very high value platinum coin, that after it is credited by the Fed, will make it very plain that there is no need for austerity, but that there is a need for whatever deficit spending Congress needs to appropriate, and he needs to implement, to put America back on the road to the economic and social justice we ought to be pursuing as part of a Green New Deal.

I call on him to mint that $60 T coin now. And if he fails to do that; and instead, along with the Democrats, goes ahead with his plans to impose unnecessary austerity and sacrifice on most Americans other than the wealthy, in the face of his ability to create financial plenty, then I, and others who I am able to persuade about game-changing HVPCS, will do all we can to place the blame where it belongs for “the great betrayal,” and to see that Congresspeople who join in the “grand bargain” travesty of justice pay for it at the polls!

But before we get to that point, I call on others who want to see an end to austerity join me in beginning again to blog, comment, facebook, and tweet about PCS; but this time to forget about the TDC, which was always the wrong coin, and to focus on #minttheHVPC instead. That is up the ante! Make this about ending austerity, and using the right platinum coin to create the political space needed for doing it!

Forget about them taking PCS off the table! We're putting it back on the Table! Make 'Em Mint the HVPC! Make 'Em Do It!

(Cross-posted from Correntewire.com.)

Ezra Klein Chooses Fear Mongering the Big Coin, I Choose Ending Austerity!

Joseph M. Firestone — Fri, 11 Jan 2013 19:50:15 -0500

(H/t to Lambert Strether for the title!)

Here's a commentary on Ezra Klein's recent diatribe against Platinum Coin Seigniorage (PCS).

But there’s nothing benign about the platinum coin. It is a breakdown in the American system of governance, a symbol that we have become a banana republic. And perhaps we have. But the platinum coin is not the first cousin of cleanly raising the debt ceiling. It is the first cousin of defaulting on our debts. As with true default, it proves to the financial markets that we can no longer be trusted to manage our economic affairs predictably and rationally. It’s evidence that American politics has transitioned from dysfunctional to broken and that all manner of once-ludicrous outcomes have muscled their way into the realm of possibility. As with default, it will mean our borrowing costs rise and financial markets gradually lose trust in our system, though perhaps not with the disruptive panic that default would bring.

Name calling, labeling, and fear mongering aside, does Ezra understand the first thing about PCS? Does he know that if a $60 T coin were minted, and the Treasury General Account (TGA) filled with $60 T in electronic credits, the US would be able to just say goodbye to the international markets? If we were paying off the national debt as it fell due, we would not only not be defaulting, but would be paying all our creditors on time and in full, and without benefit of further debt instrument issuance. Nor would we care whether the markets trusted us or not; since we would not be borrowing money from them for the foreseeable future. So, how could our borrowing costs rise?

And, as far as predictability is concerned, what would then be predictable is that we would be paying all our obligations to everyone whether Wall Streeters, denizens of the global markets, pensioners, Medicare, and Medicaid recipients, and everyone else we have obligations too without anyone getting the short end of the stick. Now, I'd like to see that kind of predictability from this Government, without any drama, histrionics, deficit terrorism, or whining about how our moral character is too weak to endure the Washington Post's favorite meme, “shared sacrifice.”

The argument against minting the platinum coin is simply this: It makes it harder to solve the actual problem facing our country. That problem is not the debt ceiling, per se, though it manifests itself most dangerously through the debt ceiling. It’s a Republican Party that has grown extreme enough to persuade itself that stratagems like threatening default are reasonable. It’s that our two-party political system breaks down when one of the two parties comes unmoored. Minting the coin doesn’t so much solve that problem as surrender to it.

Well, Ezra, that's your notion of the worst problem we face. My notion of a problem is that our national debt is hopelessly misconstrued by people, and that its existence is being used by radical “free market” extremists who want to sharply cut the social safety net, and who also want to block the passage of other Government programs that would benefit most Americans. So, I want to get rid of “the national debt” as a political issue. The best way to do that is to get rid of that national debt. That can be done by using PCS, and in a way that will not drive the economy into depression, or working people into even deeper poverty.

The platinum coin is an attempt to delay a reckoning that we unfortunately need to have. It takes a debate that will properly focus on the GOP’s reckless threat to force the United States into default and refocuses it on a seemingly absurd power grab by the executive branch. It is of no solace that many of the intuitive arguments against the platinum coin can be calmly rebutted. It’s the wrong debate to be having.

Only your version of the platinum coin. You clearly have in mind the Trillion Dollar Coin (TDC) PCS option. I agree that it would only delay a reckoning, and that a debate over its legality is not the debate to have. But a $60 T coin, would eliminate the debt ceiling as a factor, make the debate about getting rid of austerity irrelevant, and also make it impossible to use any of following to oppose progressive legislation:

-- “The Government is running out of money.” (Not with a $60 T coin in the bank.)

-- “The Government can only raise money to spend by taxing and borrowing” (Not with PCS)

-- “We can't keep adding debt to our national credit card.” (We won't be using any of the money on the credit card.)

-- “We need to cut Government spending and make do with no more money.” (Only if more spending would definitely cause inflation.)

-- “if the Government borrows more money, then the bond markets will raise our interest rates.” (The Government won't be borrowing anymore.)

-- “If we continue to issue more debt, our main creditors: the Chinese, the Japanese, and our oil suppliers, may cease to buy our debt, making it impossible for us to raise money through borrowing which, in turn, would force us into radical austerity, or perhaps even into insolvency, which would then be followed by radical austerity and repudiation of our national obligations." (Again, the Government won't be borrowing anymore, so who cares if they no longer want to buy our debt)

-- "Our grandchildren must have the burden of repaying our national debt." (There won't be any debt or any burden.)

-- “Now, the final step – a critical step – in winning the future is to make sure we aren’t buried under a mountain of debt.” (Again, no debt; either mountain or molehill.)

-- “Our government spends more than it takes in. That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same.” (But it is sustainable. If we use PCS, then we can have gaps between taxes and spending every year.)

-- “We need to cut entitlements like Social Security and Medicare, because we are running out of money and they are not fiscally sustainable.” (But they are with PCS, because we won't be running out of money!)

-- “If we make the hard choices now to rein in our deficits, we can make the investments we need to win the future.” (Given PCS, what we do now about deficits has nothing to do with our capability to make the investments we will need)

-- “We need to reduce our deficits to be fiscally sustainable.” (Deficits have nothing to do with fiscal sustainability in the sense of continued capability to spend, which will be very plain to people if $60 Trillion is sitting in the TGA.)

-- “We face a crushing burden of debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead.“ (Can't say that if most of the debt is about to be paid off.)

-- “Our debt is out of control. What was a fiscal challenge is now a fiscal crisis. We cannot deny it; instead we must, as Americans, confront it responsibly.” (PCS can confront it responsibly, but the bipartisan horror just enacted can't.)

-- “We believe the days of business as usual must come to an end. We hold to a couple of simple convictions: Endless borrowing is not a strategy; spending cuts have to come first.” (Right! So let's stop borrowing and use PCS.)

-- “Everyone knows that the U.S. budget is being devoured by entitlements. Everyone also knows that of the Big Three - Medicare, Medicaid and Social Security - Social Security is the most solvable. . . . “ (The budget can be as big as we need it to be with PCS.)

-- “The Social Security Trust fund is a fiction, a mere bookkeeping device.. . . There is no free lunch. There is nothing in the lockbox.” (There will be if we pay back the trust fund through PPCS.)

-- “There is a deficit/debt reduction problem for the Federal Government that is not self-imposed.” (What's the problem? We can't run out of money with PCS!)

-- “The Federal Government is like a household and that since households sacrifice to live within their means, Government ought to do that too.” (What nonsense! As PPCS shows very well; the Government is not like a household. Households can't create unlimited funds through PCS; but the Federal Government can.)

-- “The only way to tackle our deficit is to cut excessive spending wherever we find it.” (It's always good to cut spending that's not in the public interest. But if spending is having good results, and we're using PCS, then there's no reason to cut it, whether taxes cover the spending or not.)

-- “We should also find a bipartisan solution to strengthen Social Security for future generations.” (With PCS, we can easily strengthen SS by extending benefits, and we don't need to do it through a bipartisan Rube Goldberg contraption.

-- “The United States is in danger of becoming the next Greece or Ireland.” (Even without PCS it can't become Greece or Ireland, only the next Japan. But with PCS it can become the United States again.)

-- “Fiscal Responsibility means stabilizing and then reducing the debt-to-GDP ratio and achieving a Federal Government surplus” (With PCS, the debt-to-GDP ratio will be stabilized and reduced, but no "surplus," in the sense of more tax revenue than spending, will ever be necessary for revenue purposes.)

Ezra goes on to say that using the Platinum Coin will trigger a debate within the Republican Party, that will strengthen its worst factions, because its extremists will be able to argue against:

. . . a wild, unprecedented, inflationary power grab by an overreaching president. Making matters more difficult, it will become impossible for more cautious Republicans to break ranks. It’s one thing to argue, as many are already doing, that inducing default risks destroying the Republican Party for a generation. It’s another to abet such a blatantly unconstitutional, dangerous move from the executive branch.

Well, it's not blatantly unconstitutional at all Harvard Law Professor Laurence Tribe thinks it's legal. Yale Law Professor Jack Balkin thinks it's legal. The lawyer who came up with the idea, beowulf (Carlos Mucha), thinks it's legal. Philip Diehl, former Director of the US Mint thinks it's legal. And, I, a Ph.D. political scientist with some background in Constitutional Law, also think it's legal.

Even Ezra says it's legal earlier in this very column. So, who are the Republicans to label it “blatantly unconstitutional”? What evidence would they have that it's “blatantly illegal? If the President uses it he will have legal opinions supporting its legality. In addition, the plain language of the law says it's legal. Arguments that it's not are more complex and detailed than the plain language of the law. So, how will this play in the court of public opinion?

Ezra goes on to suggest that using the coin won't end the conflict; but will cause the Republicans to work even harder and in a united fashion to get what they want. Well, isn't that too bad, they're just going to work harder at being even more nasty, so the rest of us shouldn't do anything that will get them really ticked off. What kind of advice is that, the advice of a columnist who works for a newspaper with a deficit hawk editorial director, and a financial deal with the world's most prominent deficit hawk: Peter G. Peterson?

Can't you just picture it? Ezra gets called into a meeting with Fred Hiatt who asks him whether he can't do anything to dampen this platinum coin wave that everyone is riding, and Ezra replying says: well, maybe I can write something that will make people very, very afraid of the tea partiers fomenting a new American Revolution.

Of course, Ezra may be right about a big coin making Republicans even more determined to destroy the US economy than they are now. Things could happen that way; but if a very high face value coin, like a $60 T coin, is minted; then the mere presence of the $60 T in the Treasury General Account (TGA), and its use to pay down debt, will change the political context, and make Republican propaganda look much more fanciful, than it does in an imagination that assumes the political context and the future won't be changed by minting a big enough coin and using it to fill the public purse.

So, Ezra, notice what happens to the memes Iisted above. They're just not going to work anymore, if a $60 T coin gets used. If the Republicans remain stiff-necked, what justification would they then have for austerity? Now, they have the debt, and no apparent means of paying it off except lowering spending and raising taxes. But what would they have after that coined filled the public purse? The answer is ZIP!

It is likelier that the platinum coin would drive the Republican Party towards a much more dangerous and enduring standoff. If Republicans never permitted another debt increase, would we just keep minting platinum coins? Would the Federal Reserve abet the strategy and work to hold down inflation, effectively putting itself in the middle of a titanic political fight? Would the market eventually begin to panic because American governance has entered into unknown territory?

If the Administration minted a $60 T coin, then it would probably never have to mint one again, since the first one would lead people to understand that the world won't come to an end if Treasury can print money to fill the public purse to spend Congressional appropriations. Would the Fed help hold down inflation? Of course, it's their mandate. It's not about politics. They'd have to act that way. If they didn't; there'd be immediate talk of folding them into Treasury! Finally, minting and using a $60 T coin to pay for debt and deficit spending won't be inflationary.

There are two ways to truly resolve the debt-ceiling standoff. One is that the Republican Party needs to break, proving to itself and to the country that the adults remain in charge. The other is that America is pushed into default and voters — and the world — reckon with what we’ve become, and what needs to be done about it. Sadly, there’s no easy way out. It’s heads America wins, tails America loses.

Well, rule out the platinum coin, and sure, these may be one's only two choices. But Ezra hasn't shown that using a really BIG coin would elicit real problems, other than getting the Republicans and the right wing really, really, mad (maybe they won't have lunch with him anymore), and there are compelling arguments suggesting the contrary. So, I think that Ezra's gone off the deep end in this column, especially when you consider the cost of default to people, and also the cost of the austerity alternative. Both default-induced austerity; and major party-induced austerity by compromise are both utterly unacceptable.

We must find a third way! Ezra can't just assume that there is no way out of his Hobson's choice. He and we need to consider game-changing PCS before condemning the nation to default.

(Cross-posted from New Economic Perspectives.)

Wake Up Progressives: the Trillion Dollar Coin Can Be Game-Changing!

Joseph M. Firestone — Thu, 10 Jan 2013 19:33:30 -0500

Well, not really. But if you view the Trillion Dollar Coin (TDC) meme, as I do, as a short-hand for the more general idea of using Platinum Coin Seigniorage (PCS), then yes, it can change the whole political game for progressives if President Obama dares to use it.

Literal TDC proposals would solve the debt-ceiling, but they won't solve the larger problem of defeating the austerity politics that is so close to getting the cuts to social safety net and important discretionary government programs that austerians have long sought. PCS game-changer proposals are the ones calling for, or analyzing the impact of, PCS options aimed at paying off the national debt and covering anticipated federal deficit spending for some years.

PCS options of that kind change the game of fiscal politics by removing the issue of austerity from fiscal policy considerations. With this kind of PCS the national debt and the debt-to-GDP ratio go away as matters of concern. The focus of fiscal policy then becomes the impact of specific policies rather than some overall deficit or debt reducing target. The issue in fiscal policy then becomes public purpose. It becomes what specific impacts, including inflation, and full employment, are anticipated from passing specific legislation, and whether or not those impacts are in line with public purpose. But, when the national debt and the debt-to-GDP ration go away as matters of concern; then the issue of the deficit viewed as something that is draining a limited supply of financial resources goes away, also, because people will understand that using PCS to cover deficits ensures that the US Treasury can never run short of its own fiat currency.

I'm sorry to say that there are few posts of this kind, relatively speaking. I'll list and link to some of those posts later. But first I want to point to what some in the MSM blogosphere are saying right now.

A popular position in the MSM blogosphere

In response to a tweet from the National Republican Congressional Committee (NRCC) yesterday, Jason Linkins at HuffPo repeats Joe Wiesenthal's earlier contention that the platinum coin has nothing to do with additional spending, but only with solving the debt ceiling problem. And Linkins says:

The only role the platinum coin plays, in the scenario described by those who promote the idea, is an emergency measure that protects the United States taxpayer and the global economy from the catastrophic effects of a debt ceiling breach.

Linkins is just wrong about this, some, like myself have been advocating game-changing platinum coin seigniorage since July 2011 to get rid of austerity politics and enable the United States to handle its various problems without progressives having to constantly struggle against memes like “we can't afford it,” “we're running out of money,” “we're going to leave huge financial debts to our grandchildren,” and other nonsense memes along these lines from austerians. Linkins accuses the NRCC of lying about this and says that the idea that some people are advocating using the coin to provide the means for spending is “a myth.”

Well, I don't know whether the NRCC knows the PCS literature well enough to know about game-changing proposals, so they may have been lying about it out of ignorance. But, nevertheless, even though they may have misrepresented the position taken by many in the MSM “liberal” blogosphere, they haven't told an untruth about people like myself who aren't part of the MSM echo chamber, and who think more broadly about the possibility and potential of PCS applications. The real issue here isn't whether the NRCC is lying. It's why people like Wiesenthal, Linkins, Krugman, and Matthew O'Brien of the Atlantic aren't focusing on game-changing PCS. In an earlier post, I pointed out that Wiesenthal was concerned about inflation; and surprise, surprise, it turns out that O'Brien is too. He says;

So why not just mint 16 of these $1 trillion coins and retire the entire national debt, smart guy? Or, even better, create a single $16 trillion coin -- scratch that, make it $100 trillion!

Now that's just crazy talk. Let me be clear: Nobody wants to use platinum coins to eliminate the debt. As http://krugman.blogs.nytimes.com/2011/08/15/mmt-again/ Paul Krugman points out, there's a limit to how much seigniorage a government can extract before hyperinflation sets in, and that's certainly far less than $1 trillion, let alone $16 trillion. . . . .

Can we cut this short? I need to run out and buy some canned food and gold bars to prep for the coming hyperinflation. A trillion dollar coin is only two orders of magnitude away from us matching Zimbabwe for monetary ignominy.

OK. So, it's really about the fear of hyperinflation from a guy who tweets under the name @obsoletedogma, and the reference to Krugman indicates that O'Brien, like Krugman, still goes along with the Quantity Theory of Money (QTOM), which Keynes put to a well-deserved rest during the 1930s. Talk about obsolete dogma, IS-LM and loanable funds models aren't exactly examples of up-to-date economic models.

Here's a good blogosphere refutation for Matt to read to understand that the QTOM dog won't hunt! And that he and the others need a specific analysis of why a $100 T coin would cause inflation including specifying causal transmission mechanisms for causing inflation when the seigniorage profits, including the debt repayment money would be paid out over a period of years, and the immediate money to be paid out, would go only to pay intragovernmental and Fed-held debt.

Before O'Brien, Wiesenthal, Linkins, and others start chanting: Zimbabwe! Weimar! I think they ought to do such an analysis and put off going out for some canned food and gold bars. I've done a fairly detailed analysis of PCS impact showing why it wouldn't be inflationary, whatever the denomination of the coin(s) involved. So has Scott Fullwiler. With so much at stake in the debate over the TDC, I think they should at least read these Posts and tell us why they disagree, before they go off half-cocked about using PCS and getting hyperinflation or even inflation!

Wiesenthal, and Linkins, agree that the Platinum “. . . . coin debate coin could be the most important fiscal policy debate you'll ever see in your life." I agree but, if that's truly the case, then let's see them expand the debate to a serious consideration of game-changing PCS, and get off the shtick of talking only about the TDC as a solution to the debt ceiling problem.

Game-changing Platinum Coin Seigniorage Options and Posts

So, again, PCS game-changer proposals are those calling for, or analyzing, the impact of, PCS options aimed at paying off the national debt and covering anticipated federal deficit spending for some years. They probably start at no less than $30 Trillion, because you need $16. 4 T to set aside for paying off the national debt, and then another 14T, which may cover the next 10 years of needed deficit spending if we can get the economy recovered again and get a better balance of trade than we have now. A $60 T option would cover the debt and deficits for 15 – 25 years, and $100 T would probably work for 40 - 45 years.

The further you go out, the more nominal money value you have to have in the public purse to cover deficit spending. The reason for that is that an economy like the US, which imports more than it exports, needs Government deficit support of full employment of roughly the size of the trade deficit plus the size of the demand leakage to private sector savings per year. Assuming the private sector will want to save 6% of GDP per year and that our trade deficit is likely to continue at 4% per year, we can see that we'll need a Government deficit of about 10% of GDP per year to sustain full employment. This follows from the well-known sectoral financial balances model of macroeconomics. It's an accounting identity and always holds.

Once the savings and trade balances are determined, then the deficit will be the sum of those. The only question is whether the deficit spending will be done well, that is, in such a way that full employment is facilitated along with investments that guarantee a bright economic future, or whether the deficit spending will be ad hoc and strictly dictated by the automatic stabilizers like unemployment insurance payments, food stamps and the like. So, since GDP will be growing throughout this period, the deficit spending we'll need per year also will be growing along with the size of the economy.

Some bloggers have advocated minting a $quadrillion coin, and that is another option for how to proceed with game-changing PCS. I'm not really opposed to that. But I've proposed the $60 T coin, because I think a game-changing PCS solution is a transitional stage preceding the reorganization of the Federal Reserve and its placement under the supervision of the Treasury Department. Since the $60 T coin will cover debt repayment and debt-free deficit spending for 15 - 25 years; it provides enough time to educate people politically about the desirability of such a change, while providing the Executive Branch with the power to fill the public purse while retaining Congressional control over the purse things themselves, as the Constitution requires.

Why do I call options like the ones above game-changing options in contrast to using the $1 T coin? The reason is that they, unlike the $1 T coin option, not only solve the debt ceiling; but also change the way the Treasury gets the credits into its spending account to deficit spend. The Treasury doesn't create those credits directly with the platinum coin; but it does mandate the Fed to use its power to create them in response to depositing the very high value coin. Once the credits are swapped for the very high value coin involved, the national debt subject to the limit can be paid down and eventually off, without severely contracting the economy, and also deficit spending can then proceed using the credits already in the Treasury's spending account. In short, the very high value PCS options fill the public purse with enough credits to take the debt off the table as an issue, and also to make the question of how we're going to pay for the deficit spending we may need to adjust to the sectoral balances irrelevant, because the money will already be there to support that needed deficit spending.

With the debt ceiling, and the “how you gonna pay for it” issues gone from political debate; the foundation for austerity politics is also gone. We can forget about the Washington think tank industry talking about 50 year budget projections, fixing the debt, debating the debt, agonizing over the debt, calling for cuts to the safety net, saying we cannot afford Medicare for All, or programs for facilitating full employment, etc. This would be a new day for progressive and American politics. It would mean goodby to Bowles-Simpson, Maya McGuineas, Pete Peterson, Alice Rivlin, and all their cohorts.And it would mean hello to a new generation of progressives who could aggressively push a movement for social and economic justice for the 99%.

Moving to PCS game-changing posts, there are very few people blogging game-changing PCS until now. I began blogging it on July 21, 2011, during the first wave of mainstream posts on PCS, with a $30 T PCS post, including a speech the President could make announcing it and politically justifying it, and also a pretty detailed discussion of the inflation issue.

I concluded that inflation due to PCS per se wouldn't be an issue, because the $6.4 T in intragovernmental and Fed-held debt wasn't going to get into the economy. The repayment of other debt, gradually, and when it fell due, would have a similar impact on the economy as quantitative easing, already shown not to be inflationary. In addition, there was plenty of evidence to suggest that the reserves swapped for debt instruments when these are retired are less inflationary then the debt instruments, in any event. Finally, the use of PCS for deficit spending, in place of debt instrument sales, also would not be inflationary, because 1) the difference between these two is like QE; and also 2) the net financial assets produced by the deficit spending would be reserves rather than debt instruments, already shown to be less inflationary.

I followed that one on July 25, 2011, with an open letter to the President and Congress using the $30 T PCS proposal, and followed those posts with two more mentioning high value PCS on the 26th and 29th. At that point, on July 30, a popular blogger at DailyKos, Seneca Doane, wrote a blockbuster post on high value PCS that received 569 comments there, a large amount for DailyKos. It was a one-off thing for Seneca, but nevertheless did a lot to establish blogging about PCS at DailyKos, and also, Seneca was the first to mention the $quadrillion platinum coin in one his comments.

After Seneca's post I kept blogging about high value PCS, routinely including it in my posts. Then on August 2nd, the day after the debt ceiling settlement Scott Fullwiler published his post on coinseigniorage and inflation. This was a comprehensive analysis of the types of payments that might be made using coin seigniorage funds. Scott, a top-level MMT economist showed that 5 different types of payments would not be inflationary, regardless of the face value of the coins that were minted.

After August 1, 2011, mainstream bloggers dropped PCS like a hot potato since the debt ceiling was no longer in the news. But I kept blogging about it because I knew the debt ceiling would be coming back, and also because I had become far more interested in game-changing PCS than in the Trillion Dollar Coin itself.

On August 3, 2011, I blogged “Proof Platinum Coin Seigiorage: A Political Game-Changer for Progressives,” along with the $30 T post, I consider this post to be one of my most important ones. For one thing it introduced the $60 T alternative for the first time. For another, it made very clear the idea that minting such a coin would change the political context and also the terms of political debate. I still think that post is the most compelling one I've done for high value PCS. On August 5th I followed with “Mint the Platinum Coin: End the Austerity War Against the People” which urged the President to implement high value PCS ($60 T) immediately. It outlined a scenario, in which the President minted a $60 T coin and then had to cope with the results of his action.

I continued blogging on the $60 T option bringing it up in the context of various issues throughout the rest of August and most of September 2011. Then on September 26, I posted “Filling the Public Purse and Getting the Public Spending We Need.” Another one, I consider very important. That post emphasized the distinction between filling the public purse and opening the purse strings. It made the point that while PCS gives power to the President to get the public purse filled; it doesn't open the purse strings for deficit spending. It's still up to Congress to do that, showing that PCS DOES NOT interfere with the constitutional power and duty of Congress to appropriate Government spending. Throughout the rest of 2011 and the first half of 2012, I blogged on PCS in the context of other issues. During the second half of 2012, I blogged about it in defending entitlements, on debt/deficit issues, and the debt ceiling and fiscal cliff issues. I also updated my $30 T post to a $60 T post and started a petition on $60 T PCS which has gotten very little support so far.

That pattern of blogging relating high value PCS to other issues like unemployment, the fiscal cliff, health care etc. continued until December of 2012, when the Second Wave of MSM posts about PCS broke on December 3. At that point I began a series of posts you can find at, among other places, New Economic Perspectives (NEP) and Correntewire. The posts at NEP will be found on my page there. The posts at Correntewire are related to one another through a handy link structure which forms “a book” over there. The book begins with a history post and then considers various aspects of PCS including reviews of posts in the current debate. One post in the series extends Scott Fullwiler's analysis of PCS and inflation further. This post is part of the developing book on high value PCS.

Most recently, apart from from my own posts, other bloggers at DailyKos are starting to support High value PCS. These include: a post by priceman, one by bunnygirl60, and, a third by NBBooks.

Conclusion

So, that's it! What the mainstream blogs are missing in their discussions of PCS is game-changing PCS, because their posts are overwhelmingly focused on the TDC. They dismiss game-changing PCS, when they recognize it at all by saying, of course PCS isn't about that; it's only about getting around the debt ceiling, and anything beyond the TDC intended to do much more would be inflationary, and a great and unwelcome disturbance in the normal way of doing things of developed nations. However, when the likelihood of inflation and hyperinflation is analyzed as in posts written by myself, and Scott Fullwiler, it becomes clear that claims about hyperinflation and inflation are very stereotypical and are based on either no analysis or very primitive notions about the QTOM.

The importance of the high value PCS the MSM bloggers won't talk about, meanwhile, is that if tried it promises to end austerity and usher in a new era of progressive, even Green New Deal Politics, because the ideological basis of austerity politics which is the growing national debt would be gone. There are very few people blogging about this so far. But I've completed many blogs on $30 T and $60 T PCS which have discussed the major issues involved in high value PCS, and which have certainly provided a better basis for more extended discussion of it than the mainstream has so attempted. Whether they will ever go beyond the TDC, I don't know; but hopefully this and other posts I've completed in past weeks will challenge the more curious among mainstream bloggers to begin to write about game-changing PCS and leave the small-ball TDC behind.

(Cross-posted from New Economic Perspectives.)

Trillion Dollar Coin: Posts on Legality and Constitutionality

Joseph M. Firestone — Sat, 05 Jan 2013 13:18:25 -0500

Enthusiasm for using Platinum Coin Seigniorage (PCS) to produce a Trillion Dollar Coin, or coins totaling a few trillion dollars continues to increase. The twitterverse went mad two nights ago around #mintthecoin, a hashtag originated by MMT's Stephanie Kelton, which by yesterday morning had become the 5th most highly trending topic on twitter.

Meanwhile, the blogosphere continued to produce more points of view on the Platinum Coin. The points of view divide into those that are very negative; either claiming that 1) using Platinum Coins would be illegal or unconstitutional, or 2) using them would be just ridiculous and financially irresponsible, and so should be avoided; and others that favor using PCS 3) either in a limited way to avoid the debt ceiling crisis, or 4) in a much more robust way, that would change the procedures underlying Federal spending, so that fiscal policies advocating austerity no longer have a political foundation in a visible and rising national debt that austerity advocates can constantly talk about fixing through “shared sacrifice.” In this post I'll review new posts on legality and constitutionality.

Kevin Drum on legality

Kevin Drum of Mother Jones filed his second recent post claiming that the trillion dollar coin is illegal and will be subject to challenge in Court on grounds of intent. He repeats exactly the same reasoning he used in his first post. I've already critiqued that reasoning saying that the Courts generally don't try to interpret laws based on theories about Congressional intent. The Justices aren't collective psychologists who are expert at divining the intent of the Congress. They are expert, however, at interpreting what the text of a law says, and so that is what they stick to almost all the time. A challenge to PCS based on intent isn't something any Court is likely to take up. Drum then adds:

There is, apparently, a widespread belief that courts will uphold a literal, hypertechnical reading of legislative language regardless of its obvious intent, but I'm quite certain this isn't true. Courts are expected to rule based on the most sensible interpretation of a law, not its most tortured possible construction. I don't think there's even a remote chance that any court in the country would uphold a Treasury reading of this law that used it as a pretense for minting a $1 trillion coin.

I am, obviously, not a lawyer. So if someone with actual legal training in the appropriate area of the law says I'm wrong, then I guess I'm wrong.

Well,, the language of 31USC5112(k) doesn't look very tortured or “hypertechnical” either to myself or many others who have looked at this including lawyers Jack Balkin and Carlos Mucha (beowulf); but seems very plain and unambiguous. Drum is entitled to his opinion, but as he keeps saying, he's no lawyer, and his judgment about what the Courts will do based on the problem of intent isn't very plausible.

What if a trillion dollar coin is used to avoid the debt ceiling, and this saves the United States from defaulting on its debts, and the world financial system from collapsing? Is it then likely that the Supreme Court will entertain any challenges to the plain language of the law based on an interpretation of intent, which would then place the Treasury in the position of having to return that trillion dollars in Fed credits, and again look default in the face? Can you see John Roberts ever voting for this? Please Kevin, give us a break!

John Carney on Unconstitutionality

John Carney believes that Platinum Coin Seigniorage (PCS) and the Trillion Dollar Coin are unconstitutional. The core of his argument is:

There are limits to how far Congress can stretch its powers under the necessary and proper clause. Of particular interest to us here is the non-delegation doctrine, which holds that the Constitution's requirement that laws be passed by both houses of Congress and signed into law by the government constrains the ability of Congress to delegate its lawmaking authority to other bodies. . . .

The Supreme Court . . . . went out of its way to affirm the basic principle of non-delegation . . .

Article I, Section 1, of the Constitution vests "[a]ll legislative Powers herein granted... in a Congress of the United States." This text permits no delegation of those powers, and so we repeatedly have said that when Congress confers decision making authority upon agencies Congress must "lay down by legislative act an intelligible principle to which the person or body authorized to [act] is directed to conform."

So the question that is relevant for us here is whether or not the law that authorizes the creation of platinum coins by the U.S. Treasury lays down an "intelligible principle" to which the Treasury is directed to conform.

He then quotes the law authorizing PCS:

"The Secretary may mint and issue bullion 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."

You see the problem here, right? There's no intelligible principle whatsoever. The law gives the Secretary complete discretion over everything having to do with the minting of platinum coins. This is very likely an unconstitutional delegation of the legislative power to coin money and regulate the value thereof.

Carney goes on to talk about issues of standing recognizing that standing may be very difficult to get from the Courts and that therefore it may not be possible to challenge the law. But he still thinks that the above argument is a decisive one and that the coin seigniorage law is unconstitutional. You see the problems here, right?

First, the power to physically mint coins is not a law making power, per se. In delegating this power to the Treasury and the Mint, no law making is involved. So, the principle of non-delegation of legislative power may not apply even if “intelligible principles” didn't exist. But, as we'll see they do exist anyway.

Second, Congress delegated the Treasury the power to mint platinum bullion and proof coins having a variety of properties to be specified by the Secretary; but it did not delegate to the Secretary that power with respect to coins made out of other materials; or even with respect to platinum coins that are neither bullion or proof coins. So, Congress did limit the authority of the Treasury according to intelligible principles. And in the area of platinum coins what Congress has done is to delegate its authority according to “the intelligible principle” that the Secretary is to mint such coins with face values he/she deems necessary and proper. That seems like an intelligible principle to me, even though John Carney may not like the principle.

Beowulf goes much further in pointing out that the Treasury Secretary's broad coin minting authority is, in fact, highly constrained by Congress. He says:

Now here’s where John is wrong, the Secretary has no legal discretion in this matter whatsoever. His path is laid out by Congress like he’s the mechanical rabbit at a dog race.

1. Congress tells the Secretary (as supervisor of the IRS) how much to collect in tax receipts and (with somewhat less effort) in miscellaneous receipts.

2. Congress tells the Secretary as signatory of every single appropriation warrant how much money to transfer to federal agency sub-accounts (called “appropriation symbols” for some obscure reason).

3. Congress tells the Secretary he MAY borrow on the credit of the United State to fund expenditures but not for one penny more than the debt ceiling.

4. Congress tells the Secretary he SHALL mint coins such coins as he decides are necessary to meet the needs of the United States.

When Congress orders the Secretary to spend appropriations in excess of the receipts they’ve ordered him to collect, the unavoidable budget deficit must be filled by the combination of the Secretary’s powers to borrow (debt limit-constrained) money and to mint (debt-free) money. If Congress refuses to increase receipts or cut appropriations or extend the debt limit, the Secretary has only one and only one path to comply with all of his legal duties. Maybe I’m naive, but I’m confident the path to salvation will never be ruled unconstitutional by any United States Court.

This is a pretty decisive argument about "intelligible principles" governing Treasury's responsibility to coin, isn't it?

Third, Carney's using his non-delegation argument to apply against the PCS legislation is remarkably devoid of the legal context of Congress's delegation of its money power. If the Court were willing to consider such a theory in relation to PCS, then how would it avoid applying the same theory, when someone comes along who wants to challenge the constitutionality of the Fed?

In creating the Fed Congress not only delegated very, very broad money creating powers without specifying intelligible principles to guide the delegation; but in addition, it created an executive institution which is independent of the Executive Branch. Surely, this is an unconstitutional delegation of its power that infringes on the rights of the Executive Branch of Government. But it is an unconstitutional delegation that no one except the President has obvious standing to challenge, as Senator Phil Hart (D-Mich) and Congressman Henry Reuss (D-WI) found during the 1970s when they were denied standing to pursue their suit against the Fed on its constitutionality.

In a second post yesterday John Carney replies to the criticism that the non-delegation principle, if applicable to PCS, should apply equally well to the Fed. He says:

The Federal Reserve Act, which establishes and empowers the Fed, is a long bill full of instructions from Congress about what the Fed may and may not do. (In fact, the Fed's powers were changed recently, under the Dodd-Frank Act.) Most importantly, the Act directs the Fed to implement monetary policy to meet some very specific goals.

And Carney goes on to quote the mandate of the Fed under the Federal Reserve Act following that with the conclusion:

That's an extremely explicit "intelligible principle." The Fed cannot make policy willy-nilly.It must conform its policy to increase production while promoting maximum employment, stable prices and moderate long-term interest rates. The Fed has a lot of latitude when it comes to how best to pursue those goals but the goals are very clear.

All that is true, but, this very explicit instruction of the Fed in the Act makes it quite clear that the Fed performs Executive functions, and the question immediately arises about whether Congress has the constitutional authority to create and maintain it as independent from the Executive Branch, especially since there is no clearer principle in the Constitution than separation of powers and the establishment of only three branches of Government. In addition, the Act establishing the Fed isn't very explicit in regulating and guiding its money creation powers. Surely it doesn't explicitly give the Fed the authority to create money out of thin air, or limit this power in any coherent way.

Apart from this however, Carney's comparison between the Fed legislation and the coin seigniorage legislation is an unfair comparison, because the Fed as an institution with delegated powers should surely be compared to the Treasury as an institution with delegated powers, and then the question should be asked whether Congress has specified “intelligible principles” for both. I think the answer is clearly yes, and also that there is little to distinguish between them on these grounds.

Also, the relevant and fair comparison between the Fed and the Treasury Carney should have made is in the area of money creation powers,

rather than comparing the Fed as an institution with the narrow Treasury function of platinum coin minting and seigniorage authority. Once one does that; it's plain that the authority of the Fed with respect to respect to reserve and currency creation is lavish, and much less regulated and governed by the Congress in the form of “intelligible principles”, than is the coinage authority of the Treasury.

In fact, it is only in the area of PCS that the Treasury has anywhere near the freedom and authority that the Fed routinely exercises over reserves. So, with respect to money creation powers it seems that a much greater delegation problem, if there is one, exists between Congress and the Fed than between Congress and the Treasury.

Of course, no one can be sure about what strange decisions may ensue from this Supreme Court. But the same problem exists with Carney's theory about what the Courts might do as with Drum's. That is, if the President uses PCS, cites the legislation, and then prevents a default, will the Courts really then declare the PCS legislation unconstitutional based on a vague doctrine like non-delegation which has had limited previous applicability, which would be questionable in this application, and which might have the consequence of crashing the global financial system? Somehow I doubt that John Roberts and Anthony Kennedy would join in such a ruling; and Justices Kagan, Ginsberg, Briar, and Sotomayor are even less likely to decide that way. In other words, John Carney, if it ever gets to the Supreme Court, which is highly doubtful due to standing problems, I think there's a 6-3, or perhaps even a 7-2 vote in favor of constitutionality coming up on this one.

Conclusion

Summing up, I think the efforts of Drum and Carney to put forward legal theories about the coin seigniorage legislation are both questionable. Drum really offers a tough argument to make stick, because the kinds of intent considerations he brings forward could be used to challenge any Act that had unintended consequences. When we realize that almost every piece of legislation has unintended consequences, it's clear that an attack based on intent would really be a difficult one to sustain in the face of the plain language of 31USC5112(k).

And with respect to Carney's legal theory, that the non-delegation doctrine can be applied to coin seigniorage, it is very hard to take his theory seriously. Sure, legislation that assigns legislative powers to other branches of the Government is unconstitutional. It's also true that legislation assigning executive functions to agencies outside the Executive Branch is also unconstitutional.

But what is a legislative function and what is an executive function? The boundaries between the two are often not so sharp, and some deference must be and has been given by the courts to Congress's own decisions in delegating both its own and executive functions (like the Fed's) to other agencies. So, the application of the non-delegation doctrine is a very subjective matter, and is very unlikely to be relied upon by Courts to check the coinage authority delegated to the Executive by the Congress in the clear language of the law.

(Cross-posted from New Economic Perspectives.)

Paul Goes Platinum!

Joseph M. Firestone — Thu, 03 Jan 2013 22:53:10 -0500

Another platinum coin surge in the Second Wave rippled through the mainstream media yesterday and this time hit the Congressional Progressive Caucus. Domenico Mantanaro of MSNBC kicked things off on one of the morning shows by mentioning the Trillion Dollar Coin (TDC) as a possible solution to the debt ceiling problem. Then, in the afternoon, on MSNBC's the cycle, Krystal Ball, and Steve Kornacke, in discussing the coming debt ceiling conflict talked rather matter-of-factly, I thought, about minting some TDCs to get around the debt ceiling.

Then Paul Krugman blogged about platinum coins. In the context of answering a question about whether we can “print money,” to get around the debt ceiling, he answers no, and then says:

The peculiar exception is that clause allowing the Treasury to mint platinum coins in any denomination it chooses. Of course this was intended as a way to issue commemorative coins and stuff, not as a fiscal measure; but at least as I understand it, the letter of the law would allow Treasury to stamp out a platinum coin, say it’s worth a trillion dollars, and deposit it at the Fed — thereby avoiding the need to issue debt.

An admirably brief statement of the basic idea, but followed then by this puzzler:

In reality, to pursue the thought further, the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back. So this is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand.

So, it's gimmicks for gimmicks to get around the debt ceiling, and no notion on Paul Krugman's part that Platinum Coin Seigniorage (PCS) might have a much broader use than simply countering a gimmick the Republicans are using to try to trash the social safety net and drown the Government in a bathtub.

Apart from that, however, this “. . . the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back” is a bit strange. A very high value platinum coin deposited by the Mint in its account at the Fed would have its value credited to the Mint's account in the form of electronic credits. The Fed would then keep the coin in a vault forever, as an asset on its balance sheet, and the seigniorage profits from the deposit of the coin would be swept into the Treasury General Account (TGA) where it would be used for repaying debt or other spending appropriated by Congress. So why would the Treasury ever want or need to buy that coin back from the Fed? And why would the coin be a Federal debt that the Treasury must repay?

It's true that base money issued by the Federal Government is a Federal debt in the sense that the Government has an obligation to accept it in payment of taxes. But in this case, the Fed holds the coin and it has no taxes to pay. Also, the coin never goes into circulation, but sits in a Fed vault, so where does a debt that the Treasury must repay come into this picture and why?

Paul Krugman goes on to make a number of comments about the Fed printing money and the need for the Fed to pull that money back by selling its Treasury debt at some future time when the economy is growing rapidly to prevent inflation. But these comments aren't directly relevant to using PCS, since using it is no more, and perhaps less, inflationary than using debt financing.

The appearance of PCS in Paul Krugman's blog apparently had an immediate impact. Congressman Jerrold Nadler (D-NY), in an interview reported in Capital New York said:

"There is specific statutory authority that says that the Federal Reserve can mint any non-gold or -silver coin in any denomination, so all you do is you tell the Federal Reserve to make a platinum coin for one trillion dollars, and then you deposit it in the Treasury account, and you pay your bills,"

Well, that's a little garbled, since it's the Treasury that orders the Mint to create the coin which is then deposited in the Mint's account, which is then credited by the Fed with electronic credits because the coin is legal tender, and is then swept by the Treasury for the seigniorage profits which end up in the Treasury Account, and then you pay your bills. But, regardless, Congressman Nadler has the right idea. It is legal for Treasury to make platinum coins with arbitrary face values and to use the seigniorage to pay bills.

In the same interview, the Congressman also refers to invoking the 14th amendment as a way in which the President could justify not complying with the debt ceiling. But, I think, this is not as good a solution as using PCS. The reason why, is that the debt ceiling isn't unconstitutional as long as Congress has provided alternative ways for Treasury to meet its obligations. PCS is such an alternative, so, as long as it is legal, I think the President is obligated to use it and not the 14th amendment to defeat the debt ceiling constraint.

Mike Sankowski at Monetary Realism, also reviews Krugman's views and Nadler's interview and points out that:

I don’t think the coin will be used, but the idea of the coin has now hit critical mass. He’s a congressperson, so he only knows what his aides are telling him. If his aides are talking about it, you can be sure all of the democratic aides are talking about it over drinks. It’s just part of the everyday conversation in the support staff of congress.
Nadler is right – it’s not normally proper to consider such an extreme tactic. It is terrible it had to come to this, but here we are. It would be good if we just didn’t have a debt ceiling at all. Then, it would be so much nicer if the government had a well established, and commonsensical method to allow for the Treasury to print money directly – along with rules on how much and when this could be done.

I think Mike is right about the coin reaching critical mass and now being a topic of conversation among Congressional Staff. Even more, since the coin reference comes from Jerry Nadler, we can suppose that PCS is making the rounds within the Congressional Progressive Caucus (CPC) specifically, and may become a key element in stiffening their spines during the debt ceiling fight. The CPC is much less likely to accept a lousy deal from the Republicans and the President if they know very well that the President can rise above the whole debt ceiling crisis by minting a very high value platinum coin.

Mike Sankowski voices misgivings about the coin. Above he calls it an “extreme tactic” and later on in his post he talks about the problem of giving politicians the power to print money. On the last point, I think the Constitution has already given the politicians the power to “print money.” And it's a wonder that instead of grasping that power more firmly, they've constructed all kinds of constraints preventing them just issuing it.

Until 1971, they constrained themselves with the gold standard. And from then until the present, they've constrained themselves by insisting that deficit spending be preceded by debt issuance even though there's no reason to believe, except the discredited Quantity Theory of Money (QTM), that issuing fiat money in the act of spending is any less or more inflationary if it's preceded by issuing debt than if it's not.

Commenter Robert Rice answered Mike's misgivings about the power to print money, by pointing out that every power of Government is subject to abuse and that this is no reason not to have government and to use its powers for public purpose. And I agree, Mike Sankowki's misgivings about the “printing money” power are no more than the usual conservative disposition to always mistrust government.

It's wise to do that, since one must never cease to look gift horses in the mouth. But it's not wise to let one's mistrust cripple one's government and, as a result, arrive at the kinds of conditions we are finding ourselves in right now. After all, what is the debt ceiling legislation itself, but an expression of the same conservative impulse that Mike is voicing? Listening to it is what has caused the mess we're in. To get out of it, we have go onto a new track. That track is using Platinum Coin Seigniorage as our primary tool when deficit spending.

As for PCS being an “extreme tactic.” I'm afraid, I think that's just labeling. Wigwam, a blogger at FDL and DailyKos, had this answer for people who label PCS as “weird,” a very similar label to “extreme.” He said:

Such coins are “legal tender” and can therefore be deposited into the Treasury’s General Account at the Fed, from which the Nation’s bills are ultimately paid. Therefore, there is no need for the Treasury to borrow money to meet the obligations of the United States. But, and this is critical, none of that money can be withdrawn except for congressionally appropriated expenditures; e.g., the Treasury cannot monetize the national debt except insofar as such expenditures are appropriated by Congress.

For the past 220 years, the Treasury has been paying a portion of each year’s expenditures via the markup (seigniorage) on the minting of coins — last year coin seigniorage covered about 1% of the tax deficit — Abraham Lincoln went even further and paid for the Civil War with printed fiat money (“Greenbacks”), as did the European powers to finance WW I, and as did Germany to finance its part in WW II.

All of the above is background to keep in mind the next time you read a financial/economic pundit declare that it would be “weird” for the Secretary of the Treasury to exercise his powers under 31USC5112(k) and recommend that he instead foment a constitutional crises by directly violating 31USC3101(b), which I think would be “weird” at best.

And further, how much “weirder” or “more extreme” is it for a government with a sovereign fiat currency system to deficit spend only after it borrows back its own currency, than it would be for that same government just to forget about borrowing and paying interest to rich investors and foreign nations on what it can create in unlimited quantities itself. In short, what we're doing now is a lot more “weird” and “extreme” than just using existing legal authority fill the public purse to spend what Congress has already appropriated.

(Cross-posted from New Economic Perspectives.)

Beyond the MSM: the New Wave of Brief Blog Posts on the Platinum Coin

Joseph M. Firestone — Mon, 31 Dec 2012 13:19:18 -0500

Introduction

MSM bloggers and cable hosts weren't alone in creating the new wave of posts and video segments on Platinum Coin Seigniorage (PCS) at the beginning of December. The blogosphere also produced brief posts from a number of bloggers, as well as a few more substantial ones. I'll review the brief ones in this post, and the more substantial ones in future posts, but won't include my own recent posts on PCS during December.

Reviewing the Posts

First off the mark on December 3, was David Dayen at FireDogLake who mentioned the “trillion dollar coin” as something thee President could do to strengthen his hand in dealing with the Republicans. His mentioned was quickly followed by Atrios, later in the morning, who wrote a very short post saying:

I really don't know why the administration doesn't take the "mint the trillion dollar platinum coin" option seriously. It is, as far as I can tell, perfectly legal.

This triggered a post by Michael Sankowski at Monetary Realism announcing that the “Trillion Dollar Coin Goes Mainstream” which says that if Atrios knows about the coin that everyone on “the smart left” knows about it!

Mike Sankowski then blogged again on December 6, wondering out loud where Zerohedge's rant on the Trillion Dollar Coin (TDC) was? In that one Mike refers to the mainstream blogs by Yglesias, Drum, and Carney all on the TDC and then makes fun of Zerohedge for not picking up on the subject.

Cullen Roche at Pragmatic Capitalism, then blogged on the TDC on December 7, in a piece called “Platinum Coin Easing,” which draws its title from some views of JKH's I'll be reviewing in a future post. Cullen railed against the debt ceiling conflict calling it “stupid,” and also says that while PCS may look “Zimbabwean” it does solve the debt ceiling problem. Cullen points to JKH's post and says:

“The coin would replace some of the bonds that the Fed currently holds solving three issues:
1) A non-inflationary way for the US Government to spend.
2) It circumvents the debt ceiling by effectively reducing the debt balance by $1T.
3) It’s a completely legal workaround.”

Donald McClarey at The American Catholic blog also posted on December 7, on “Of Trillion Dollar Coins and Fiscal Lunacy.” calls it a lunatic nostrum, quotes the WaPo article by Plumer, and refers to the “wacked out left.” That's right, he offers no reasoning at all. Just name-calling and this:

“The country is in debt sixteen trillion dollars. By the time Obama finally leaves office we will probably be at least 20 trillion in debt. Of course this does not take into account dozens of trillions of debt in entitlement obligations coming due over the next few decades. We are rapidly reaching the point where it is mathematically impossible to ever pay off this debt without currency depreciation and/or hyper inflation. This scheme is basically currency depreciation as the US currency swells by two trillion dollars in a year’s time. If attempted I think it would lead ultimately to hyperinflation. The left are not all loons. Something like this will eventually be done by people who realize it is economic poison, but who are willing to do it anyway to get out of dealing with an unpayable debt. The impact on our economy would be likely catastrophic.“

Of course, McClarey, was in too much of a hurry ranting against the coin to notice that the first nearly $6.5 trillion of debt paid off using PCS couldn't cause currency depreciation because it would not enter the economy at all, since it would be used to pay interagency debt and Fed-held debt. Nor does any other seigniorage spending need to be happen except when debt instruments fall due, and Congress appropriates deficit spending. So, to back his hyperinflation currency depreciation rant, McClarey has to show that PCS-based spending would be more inflationary than normal spending after debt issuance, along with normal scheduled repayment of debt. Of course, he does not, and, I think, cannot show this.

Next, brief mention needs to be made of a post at “Twitchy – Tweet on the Platinum coin.” This post also happened on December 7. The tweets are entertaining but contribute little, if anything to the debate. On the other hand, they do make more sense than McClarey's post on PCS.

On December 8, James Hamilton at Econobrowser offered a post objecting to using the coin “from an institutional perspective.”

It basically amounts to the assertion that the Treasury Secretary has the unilateral power at any time to monetize completely the entire U.S. debt. The Treasury could issue a dozen or so of these coins and then pay off the Treasury's debtors at maturity just by writing a check written on its resulting ginormous account with the Fed. The creation of this power is I suspect something that Joe and every other sensible economist would view with abhorrence.

It's good that Hamilton sees the implications of the coin so clearly, but he fails to explain why Joe Gagnon of the Peterson Institute, and “sensible” economists would object so strongly to the Treasury being able to fill the public purse so that the debt could be paid off without throwing the economy into a decade of recession, depression, or stagnation due to running continuous surpluses to “fix the debt.” If there are any economists who prefer this way of “fixing the debt” to PCS, then I think the proper label for them is “insane” rather than “sensible.”

Hamilton goes on:

The plan requires the Fed and courts to play along. The Fed would need to agree to credit the Treasury's account for the deposit of the coins. I doubt the Fed would voluntarily hand over complete control of the nation's money supply to the Treasury in this manner. And the courts would be asked to confirm that legislation originally intended to satisfy a small group of numismatists in fact ceded authority to the President to monetize the entire outstanding debt of the U.S. Government.

This is, unfortunately, a highly questionable argument. Its first problem is that the Fed would have no choice because 1) the coin is legal tender; and also 2) the law says that in case any power of the Fed appears to conflict with the powers of the Secretary of the Treasury, then the Fed powers shall be subject to the supervision and control of the Secretary. So, the Fed couldn't even take this Court over the objections of the Secretary. See also beowulf's more detailed comment.

More generally, any law suit by anyone objecting to the use of the coin, on grounds of the intent of the law, would require the Court to grant standing to the plaintiff. But what would be the grounds for such standing? We already know that for Congress to have standing to sue, it's not enough to have a member of each House bring a suit to the Supreme Count because during the 1970s two progressives Sen. Phil Hart (D-MI), and Rep. Henry Reuss (D-WI), brought a case to the Supreme Court challenging the Constitutionality of the Fed, and were denied standing by the Supreme Court. So, both Houses would have to agree on an action. That won't happen.

So, both Congress and the Fed are out as plaintiffs, and anyone else would have to show that they were damaged by the use of PCS to acquire standing. No holders of intra-governmental debt could show that, or would be allowed by the President to pursue such a case. And no non-government holders could claim they were damaged by the Treasury's payoff of the debt they hold on schedule. So, again, who would have standing?

The next brief posts appeared on December 10. Louis Golino at CoinWeek posted on “Trillion Dollar Coins?” Golino follows the main line of mainstream bloggers saying that PCS is legal, but other alternatives would be tried first including the 14th Amendment and shutting down the Government gradually.

However, I've never thought that this is a sensible opening position, even though it's not an unusual one. First, because I don't think a 14th Amendment challenge to the debt ceiling law is viable as long as other alternatives exist for spending appropriations mandated by Congress, and one of these is Platinum Coin Seigniorage. And second, shutting down the Government without using an alternative that would avoid such a shutdown by allowing the President to spend Congressional Appropriations would leave him in violation of his oath of office, and potentially open to an impeachment action in the House.

Golino, and others, seem to think that all the options open to the President in a debt ceiling crisis are on all fours, so to to speak, and that he is free to select whichever option makes the most sense to him politically. But legally, if he can continue to spend Congressional appropriations without violating both the debt ceiling, and his obligations under the 14th amendment, then he's legally obligated to use an option that allows him to do that. PCS is the best of those options.

Jim McCraigh, of Precious Metals Digest, in “Trillion Dollar Platinum Coins and Other Dumb Ideas” is another blogger who worries about Zimbabwe and hyperinflation. He thinks the idea would be laughable if the “illiterate”people advancing it weren't “held out as so-called experts.”

… simply failing to understand one of the most basic economic truths… that a critical attribute of real money is as a store of value that remains stable over time. These ersatz coins would not be real money, but a super-sized fiat monetary fiasco sure to lead to political and financial chaos. Our national debt must be paid back the old fashioned way… by earning it through the creation of real wealth and not through the creation of more funny money.”

Unfortunately, for McCraigh, he has yet to adjust to the fact, that all our money these days, is fiat money, and that we can only pay back the national debt by using fiat money because it's the only kind, just as he must pay taxes using that same fiat money. The creation of real wealth is important and necessary for keeping the economy strong and for ensuring price stability; but our national debt can't be repaid with real wealth. It can be only be paid using fiat money. And from the viewpoint of its being paid when it falls due; it doesn't matter whether it's paid by fiat money acquired through taxing, borrowing, or seigniorage.

Dorothy Kosich at Mineweb also wrote a post on December 10: “Can trillion dollar platinum coins solve the US Debt Ceiling Problem?” This one was a “he said, she said” post linking to and citing Chris Krueger, myself, Jack Balkin, Pethokoukis of AEI, Joe Gagnon of Peterson Institute, Brad Plumer, and John Carney. It offers no new interpretations, but just the author's selection of the most important points from previous authors without using specific links to the posts or other documents cited.

In December 11, The MomCat at docudharma offered “The Debt Ceiling Myth and the Platinum Coin.” She reviews PCS and what it does with a focus on some posts of mine. She mentions my $60 T coin post and the distinction between the contents of the public purse and the purse strings. She also notes the difficulty of impeaching the President if he uses PCS, and quotes Jack Balkin on the possible use of the14th amendment and the likelihood of a conviction of the President in case of impeachment.

The platinum coin made The Daily Beast on December 11, with a post by Matthew Zeitlin called: “How a Platinum Coin Could Solve the Debt-ceiling Problem!” Zeitlin reviews the usual background on the TDC and then asks whether “. . . isn’t this what banana republics do, print money to fund the government when they can’t collect enough in taxes or sell their debt at a reasonable rate?”

And he answers the question yes, but also thinks it only becomes a problem when “printing money” is used regularly to cover the gap between tax revenues and spending. And he ends by saying that the platinum coin option really shows how odd the debt ceiling legislation is in applying a constraint to the Government spending on what has already been approved, and on interest payments it is already obligated to pay. He says that's a legal limit on spending and not an economic one, and that that is “the real joke,” rather than the platinum coin itself. In short, Zeitlin says nothing very different from other commentators and contributes very little to the earlier MSM discussion.

After December 11, brief replies to the PCS MSM posts seem to quiet down somewhat. But on December 17, two more appeared. One was by Fred E. Foldvary at Foldvary calls the TDC a joke, and says it would be inflationary; but he fails to specify any kind of causal mechanism for showing that this would be the case. Instead, he basically repeats the increasing the money supply leads to money inflation which leads to real inflation, Quantity Theory of Money (QTM) meme. In doing this, he ignores discussions about why QTM isn't applicable to economies like ours experiencing output gaps. He also ignores specific posts analyzing the relationship of PCS to inflation which focus on types of PCS spending, and show that these would not be any more inflationary than spending accompanied by sale of debt instruments.

A second brief reply to the MSM new wave on December 17 is from John Slater at Seeking Alpha and is called: “Balanced Budgets, Seigniorage And The Strange Case Of The Trillion Dollar Coin.”

“It appears that there is serious discussion afoot aimed at pressuring President Obama to engineer a transfer of power to the federal executive branch comparable in scope to the historical shifts engineered by Lincoln and Franklin Roosevelt during previous times of great crisis in America. This topic has gotten little coverage to date in the serious economic and political press.

“Don't doubt for a minute that we will begin to see such suggestions in spades should the Republicans stand firm when the debt ceiling issue again comes to the fore in early 2013. There will be tremendous pressure to give the President unfettered authority to spend all budgeted funds. Since the Congress seems incapable of adopting a budget, does this mean that all de facto spending authority will soon be transferred to the executive branch? The implications for the debt (TNX), foreign exchange (DXY) and equity markets (SPX) of such a transfer of power are more significant than any single factor currently driving the markets.”

I find Slater's reasoning here, a bit slippery. Congress may be avoiding doing formal budgets, but it's still appropriating money for deficit spending under continuing resolutions. So, Congress still has the purse strings in its hands, and the President won't be able to deficit spend any seigniorage profits without Congressional approval, which it can refuse to give whenever a CR comes up. In addition, of course, it could decide to do its job and arrive at a budget. Insofar, as PCS facilitates that, which it would if a $60 T coin showing that the US isn't running out of money were minted, then this is an advantage and not a disadvantage of that PCS option.

Conclusion

The brief posts on PCS don't add very much to the picture, Many of them just reflect stereotypical fears about inflation. Others review previous literature just spreading the news as it were. Still others attack the idea as silly, pretty much based on a psychological reaction rather than on any reasoned critique of the PCS idea.

The best understanding of the idea is in Cullen Roche's post. The best review of PCS posts is probably MomCat's. The posts by Hamilton and Slater bring forth legitimate institutional concerns. But to take Hamilton's seriously; you have to be supportive of the Fed's independence, which some, like myself, do not support because we view that “independence” as, in practice, subordination to Wall Street. Slater's post, voices the different concern that more de facto power still, will be shifted over to the presidency and away from Congress by PCS.

About that, I can only say that PCS gives to the presidency the power to prevent an abuse of power by the Congress, namely the debt ceiling legislation itself, and also gives the President the power to avoid interest bearing debt instrument-based financing of Congressional deficit spending appropriations if he/she desires. I think both of these are very good things, especially since the key power of controlling the purse strings still remains with the Congress, and not with the President. It seems to me that any greater leverage that falls to the President as a result of using PCS is leverage that can always seized back by Congress anytime it wants to do its collective job and represent the majority of the American people. On the other hand, if it wants to continue to represent narrow and plutocratic interests seeking to block any Federal spending that doesn't directly benefit them, then PCS profits may be viewed as a check on such an abuse of power by the Congress, and a reminder to Congress that the "how are we gonna pay for it" excuse for not legislating Federal programs people desperately need won't work anymore!

(Cross-posted from New Economic Perspectives.)

Platinum Coins, Issuing Debt, Keystroking Deficit Spending, and Inflation

Joseph M. Firestone — Mon, 17 Dec 2012 00:29:37 -0500

The most frequent objections to proposals that we use Platinum Coin Seigniorage (PCS) to create reserves for debt repayment and deficit spending, frequently come back to inflation. Perhaps people can't get over the association they learned in high school Social Studies, or perhaps in American History, or Economics 101, that when Governments create money and then just spend it without any compensating deflationary action, inflation or hyperinflation happens. Maybe they can't forget those cartoons about people in Weimar Republic days pushing wheelbarrows full of money to the market to buy some bread. So, I've been promising for about a week now, to blog about the likely expected relationship between the different PCS options and inflation using the framework laid out by Scott Fullwiler!

Types of Spending, Methods of Filling the Public Purse and Inflation/Deflation

That framework is reflected in the first column of the table where all but the top row names the categories in Scott's framework. The table also expands the framework a bit, however. Scott's post compares using PCS to using debt instruments to add reserves to the Treasury General Account (TGA), the Treasury's spending account, to make the case that PCS, in, and of itself, won't add to inflation. I want to expand the perspective a bit by adding a comparison of both these alternatives with the alternative of allowing Treasury to close any gap between the tax credits it receives and the spending appropriated by Congress by creating in its own reserves in the TGA, either directly, or by sending an instruction to the Fed to credit the TGA with the particular amount of reserves necessary to do the deficit spending. So, here's the table.

Table – Likely Inflationary or Deflationary Impact of Debt Repayment and Government Deficit Spending By Type of Method Used To Credit the Treasury's Spending Account

The conclusions in this table are based on very few ideas:

1. There's no way reserves paid by the Treasury to redeem old debt can be inflationary unless it is spent into the economy, because there's no channel for causal impact at all.

2. So, debt repaid to other Government agencies and to the Federal Reserve Banks cannot be inflationary beyond inflation tendencies already built into the regularly scheduled spending into the economy of the agencies involved.

At the end of the 2012 fiscal year the total of Federal Reserve and Federal Agency held debt including Trust Funds was $6.4 Trillion (p. 51). So immediate redemption of that debt would reduce the debt subject to the limit by just under 40%.

3. Debt instruments in the private sector are a form of financial asset that is more inflationary than reserves in checking or savings accounts.

The classical Quantity Theory of Money (QTM) says that increasing the amount of money in circulation is inflationary. But, much empirical evidence shows that this is wrong, and that the expansionary factor in modern economies is increasing Net Financial Assets leading to increased demand beyond the productive capacity of the economy to absorb. NFAs can include income in the form money; but when money is exchanged for an asset of equal value as happens when a security is redeemed, then that's not inflationary, and may even be deflationary because of the ending of interest payments and securities leveraging that follows if no compensating debt issuance happens.

Here's Scott Fullwiler's reasoning on why this is so:

As I previously explained, this is the operational equivalent of quantitative easing (QE). The purchase of Treasury securities by the Treasury would retire the securities and leave banks holding reserve balances. But, as I explained in the previous post, “Banks can’t ‘do’ anything with all the extra reserve balances. Loans create deposits—reserve balances don’t finance lending or add any ‘fuel’ to the economy. Banks don’t lend reserve balances except in the federal funds market, and in that case the Fed always provides sufficient quantities to keep the federal funds rate at its target—that’s what it means to set an interest rate target.

And on the subject of the deposits created by the debt redemptions he goes on to quote his previous post on QE3: linked just above:

“First, sellers of bonds were always able to sell their securities for deposits with or without the Treasury’s intervention given that there are around 20 dealers posting bids at all times. Anyone holding a Treasury Security and desiring to sell it in order to spend more out of current income can do so easily; holders of Treasury Securities are never constrained in spending by the fact that they hold the security instead of a deposit. Further, dealers finance purchases of securities from both the private sector and the Treasury by borrowing in the repo market—that is, via credit creation using securities as collateral. This means there is no ‘taking money from one person to give it to another’ zero sum game when bonds are issued (banks can similarly purchase securities by taking an overdraft in reserve accounts and clearing it at the end of the day in the federal funds market), as what in fact happens is that the existence of the security actually enables more credit creation and is known to regularly facilitate credit creation in money markets that are a multiple of face value. Removing the security from circulation eliminates the ability for it to be leveraged many times over in money markets.

“Second, the seller of the security now holding a deposit is earning less interest and can convert the deposit to an interest earning balance. Just as one holding a Treasury can easily sell, one holding a deposit can easily find interest earning alternatives. Some make the argument that the security can decline in value and so this is not the same as holding a deposit, but this unwittingly supports my point that holders of deposits aren’t necessarily doing so to spend. Deposits don’t spend themselves, after all.

“Third, these operations by the Treasury create no new net financial assets for the non-government sector (and can in fact reduce its net saving by reducing interest paid on the national debt as bonds are replaced by reserve balances earning 0.25%). Any increase in aggregate spending would thereby require the private sector to spend more out of existing income, or to dis-save, as opposed to doing additional spending out of additional income. The commonly held view that ‘more money’ necessarily creates spending confuses ‘more money’ with ‘more income.’ QE—whether ‘Fed style’ or ‘Treasury style’—creates the former via an asset swap; on the other hand, a true helicopter drop would create the latter as it raises the net financial assets of the private sector. Again, ‘money’ doesn’t spend itself. . . .

4. Demand-pull inflation cannot be caused by Government deficit spending, unless Congress appropriates and the Treasury spends, past the point of full employment. Whether inflation or hyperinflation happens generally has nothing to do with the method used to add electronic reserves to the TGA; but as one approaches full employment Federal interest payments and private leveraging of Federal securities resulting from debt instruments are more likely to initiate inflation than using either of the other two methods.

5. Using PCS to fill the TGA with reserves is very similar to the third method of giving the Treasury the authority to mandate the Fed to add reserves to the TGA upon instruction from the Treasury. In fact, functionally, depositing a high value platinum coin into the US Mint's Public Enterprise Fund Account, and then “sweeping” the seigniorage into the TGA is virtually equivalent to instructing the Fed to add reserves to the TGA. The “big coins” are just a different form of message than a Treasury instruction would be. But the functional financial content of the different kinds of messages is virtually the same. They both mandate the Fed to create the amount reserves specified in the message.

At Bottom A Political Choice

Some readers may look at this argument and agree with everything I've said and still prefer to deficit spend only after issuing and selling debt, rather than using either PCS or direct Treasury instructions. They might argue that even if it is true that the other methods are less inflationary, the method of debt issuance 1) is not so inflationary as to create a problem and 2) creates a political climate among the public and in Congress, that restricts government deficit spending, and keeps it sufficiently in check, that we almost always have a good deal less than full employment, and therefore never risk serious demand-pull inflation. And that's just the way they like it!

That, of course, is a political choice, and the people who make it, knowing that the Administration can use PCS to fill the public purse now, and also that Congress can authorize the third method of direct Treasury instruction if it wants to, are saying that they choose inflation control through using a method that fools most Americans into thinking that we are running out of nominal financial resources, even at the expense of having 28.5 million Americans who want full-time jobs not being able to get them, and even at the expense of having more than 50,000 fatalities per year due to lack of health insurance, and even at the expense of blighted futures for a generation of American young people, and the prospect of increasing poverty for many old people, and even at the expense of : and on and on.

Then I have an answer for them. And I'll begin by quoting Bruce Springsteen and Randy Wray.

We take care of our own
We take care of our own
Wherever this flag’s flown
We take care of our own

That's Springsteen; and here's Wray:

. . . We don’t let old folks sleep on the street. We take care of our own. We don’t let children go hungry. We take care of our own. We don’t exclude the 47%. We take care of our own.

We’re all stakeholders in this great nation. We take care of our own. White, black, brown, yellow and red, we take care of our own. Young or old, healthy or sick, we take care of our own. . . .

We need a good government to help us take care of our own. We need good public services and infrastructure to keep our country strong so that we can take care of our own. Our government spends to keep our country strong so that we can take care of our own. . . .

Sovereign government cannot be forced into involuntary insolvency. It can always afford to make all payments as they come due. It can always afford to buy anything that is for sale for its own currency. It can always financially afford any spending that is in the public interest. It can always afford to take care of its own.

Anything that is technologically feasible is financially affordable for the sovereign issuer of the currency. It comes down to technology, resources, and political will. We’ve got the technology to take care of our own. We’ve got the resources to take care of our own. All that is missing is the political will.

And then I'd go on to say this.

Your method of filling the public purse through selling debt to accumulate credits in the TGA, may provide an extra hedge against inflation by fooling people into thinking we are running out of money and that unemployment and austerity are just the price we have to pay for insuring ourselves against inflation, but that method is anathema to me because it creates a political barrier to taking care of own, and undermines our political will to take care of our own and one another.

The 28.5 million who want full-time jobs at a living wage are our own, as much as you. And they have a right to a Federal Government that will use its full power to see to it that they have full time job offers at a living wage that they can be proud of. And that, in the final analysis is why PCS, and direct Treasury instruction of the Fed, are better methods of filling the public purse than your method of using debt instruments.

The method of direct Treasury instruction of the Fed, isn't open to us without legislation. But PCS is available now to fill the public purse. We ought to fill it, the TGA, using PCS, with $60 T in electronic credits immediately, so no one can be fooled again by people saying that we can't afford something for sale in our own currency.

We don't need to have any public debt subject to the limit if we don't want it. And we always can have enough money in the public purse to afford to take care of our own, if Congress will only represent most Americans and legislate the necessary programs, while appropriating the necessary funds to open the purse strings of that full purse the Treasury will have! At bottom, it's a political choice; and, if we want to be real Americans, then we must choose to take care of our own!

(Cross-posted from New Economic Perspectives.)

New MSM Trillion Dollar Coin Wave: Here's The Big Story

Joseph M. Firestone — Fri, 14 Dec 2012 20:13:02 -0500

The one thing that jumps out at you when reading the mainstream posts of the past week-and-a-half bringing Platinum Coin Seigniorage (PCS) into the forefront of attention again, for the first time since last year's debt ceiling crisis, is that every mainstream blogger or commentator is telling a story about minting a Trillion Dollar Coin (TDC), or a few trillion dollar coins as an option the President can either use or not to get around the debt ceiling. But no one is telling us the much bigger story of the enormously increased authority to cause the creation of fiat money, delegated to the Executive Branch by the Congress in the 1996 legislation enabling PCS. And no one is telling us what the possible implications of this change are for our political and economic systems.

I've reviewed these posts, as well as a cable segment, in the four earlier installments of this series. The installments, beginning with this one, are here. The posts and the cable segment are by: Pethokoukis, Wiesenthal, Carney, Drum, Yglesias, Yglesias, Harry Bradford, Brad Plumer. and Chris Hayes.

Background: Moving off the Gold Standard

This is reminiscent of the situation with the system of fiat currency itself in 1971, when President Nixon, took us off the gold standard for purposes of international trade. After Nixon's action there were no good treatments in the Press, or by economists, about how the move to a non-convertible fiat currency with a floating exchange rate ,and no international debts denominated in any other currency, had changed the financial system by removing the possibility that the Government could become involuntarily insolvent (“run out of money” except through its own choice not to create more).

Before Nixon's big change, the amount of US currency and reserves was limited by the amount of our gold reserves, because it was possible for other nations to demand payment in gold in return for the dollars they held in their accounts at the Federal Reserve. In fact, Nixon closed the gold convertibility window, because France had started what looked like might be a multinational run on the gold reserves of the United States, jeopardizing the stability of the dollar in international trade, and threatening its role as the reserve currency in the middle of the Vietnam War.

After the window was closed however, other nations followed the United States in leaving the gold standard, with the result that now we have a world of nations with fiat currencies, though many nations aren't “sovereign” in their own currencies because they've incurred debts in other currencies, or have pegged their currencies to the dollar, or, in the case of the Eurozone nations have, like the American States, given up their power to issue currency, and become currency users of the Euro (or the dollar, as the case may be).

Nixon's ending of the gold standard was enormously significant because it removed the gold supply solvency constraint on the United States. And it restored the powers of the Government given it by the Constitution to issue money as needed to provide for the common defense and the general welfare (today we might say fulfill the public purpose).

The Gold Standard Hangover and Progressive Fiscal Policy

But the full significance of this event wasn't understood by most government officials or the public, both here and in other nations. Constraints on spending that were appropriate for a gold standard-based financial system were never repealed. They persist to this very day in our institutions, in our minds, in our economic systems, and in our politics.

These included: 1) Congress dividing the financial functions of the Government between the Federal Reserve and the Treasury; 2) Congress prohibiting the Fed from directly buying Treasury-issued debt; 3) Congress's ceiling on debt subject to the limit; 4) Congress's prohibiting the Fed from issuing credits directly to the Treasury to implement deficit spending, forcing it to issue debt and making the terms deficit and debt close to synonymous in the public's mind; 5) Congress's delegating its currency power primarily to the Fed; while leaving its delegation of the power to coin money with the Treasury; and 6) Congress leaving the Fed, the Central Bank, independent of the Executive Branch and the Treasury, but, at the same time closely associated with the Banking and Wall Street interests that own the regional banks, and sit on the Federal Open Market Committee (FOMC).

These constraints have divided the sovereign currency power of the Government and weakened the President's power to implement spending appropriated by Congress, when that spending involves deficits, even though that deficit spending was previously approved by Congress in its appropriations process. They have also perpetuated the previous gold standard-based understanding of deficit spending as closely associated with the national debt and the further understanding of the debt as a threat to government solvency, the international credit of the United States, “our grandchildren,” our standing with “the bond vigilantes,” fiscal sustainability, and fiscal responsibility.

So, these constraints have mired us down in the deficit/debt cluster of issues, self-imposed chains that prevent us from using Federal fiscal policy to meet our many problems. They have been the worst enemy of economic progressivism over the past 40 or so years, and have prevented us from responding strongly enough to the crash of 2008 to create a robust, full employment economy.

And, perhaps worse, the thinking that arises out of them now rationalizes the policies of austerity and deficit reduction that threaten to destroy the social safety net and bring our economy down again into recession or depression, or at least into a decade or more of future stagnation. These austerity policies will ruin the economic lives and prospects of a generation of Americans, and will place increasing burdens driving more and more older people into poverty, for the sake of false gold-standard based theories about how to run fiscal policy in what has become a sovereign fiat currency-based financial system.

PCS Creates a Great Crack in Gold Standard Constraints and Austerity Justifications

The big story about Platinum Coin Seigniorage is not the Trillion Dollar Coin and its possible implications for solving the debt ceiling crisis, as the mainstream has been telling us. Instead it is the great crack it creates in the wall of gold standard-based constraints still hanging over our politics and economics, and the increased fiscal and policy space this gives us to use to solve our various national problems. It is the authority the Executive Branch of Government now has to break through these constraints, and begin to unify the financial functions of government behind the public purpose. Let's look at those constraints again, and see what PCS, if used vigorously by the President, can do to weaken them or make them irrelevant.

-- Congress dividing the financial functions of the Government between the Federal Reserve and the Treasury: PCS enables the Treasury to commandeer the power of the Fed to create unlimited reserves to fill the Treasury General Account (TGA); the public spending purse, to cover debt repayment and deficit spending for years to come. The Treasury can use this power to demonstrate to the public that there is no Federal solvency problem, and no need for austerity or deficit reduction, because many trillions of dollars fill the public purse.

Another implication of this power is that it would add greatly to the amount of reserves in the banking system as the Treasury adds reserves through debt repayment and deficit spending without destroying them through a corresponding amount of debt issuance. To compensate for Treasury's reserve adds, the Fed, if it wants to keep the Federal Funds Rate at a target level above zero, would have to pay interest on reserves (IOR) shifting the interest paying function from the Treasury to the Fed.

-- Congress prohibiting the Fed from directly buying Treasury-issued debt: PCS, if used to produce coins with face values high enough to repay the debt subject to the limit and also pay for future deficit spending appropriations for some years, enables the Treasury to get along without issuing debt. So, it would need no one including the Fed to buy Treasury debt.

-- Congress's ceiling on debt subject to the limit: PCS, if used to produce coins with face values high enough to repay the debt subject to the limit and also pay for future deficit spending appropriations for some years, would make the debt ceiling a dead letter for some time to come, even if the PCS authority were repealed. The law would be still be there; but it would have no effect on politics or fiscal policy because there would be no, or at least very little, debt. And there would also be no political issue due to the presence of public debt.

-- Congress's prohibiting the Fed from issuing credits directly to the Treasury to implement deficit spending, forcing it to issue debt and making the terms deficit and debt close to synonymous in the public's mind: This constraint arises from the prohibition against the Fed granting credit to the Treasury. PCS however, involves the Fed exchanging reserves for a legal tender coin produced by the Treasury. Technically this isn't granting credit to Treasury; but just the Fed accepting a deposit of legal tender into the Mint's account, crediting that deposit as reserves, and then transferring most of the reserves created into the TGA as seigniorage. So, PCS produces revenue for the Treasury without violating this constraint, and also renders the constraint unimportant.

-- Congress's delegating its currency power primarily to the Fed; while leaving its delegation of the power to coin money with the Treasury: This constraint still remains with PCS. But the 1996 legislation, for the first time, makes the coining power of the Mint the near equivalent of the reserve creating power of the Fed, by allowing the Treasury to create coins with arbitrarily high face values.

With that power, the Treasury can require the Fed to fill the public purse to any level that Treasury thinks is necessary for its purposes. So, the Treasury's lack of currency and reserve-creating authority would be far less important than before, if PCS is used to its full potential.

Let's be clear, however, filling the public purse to any level, however high it may be, doesn't open the purse strings for free spending by the President. Congress still has to appropriate spending in excess of tax revenues for Treasury to spend that money. So, Congress still has control of the public purse; even after delegating its authority to fill it to the Treasury and the Fed in combination.

-- Congress leaving the Fed, the Central Bank, independent of the Executive Branch and the Treasury, but, at the same time closely associated with the Banking and Wall Street interests that own the regional banks, and sit on the Federal Open Market Committee (FOMC) which sets the monetary policy of the United States: PCS, again, if high enough coin face values are involved, reduces the independence of the Fed relative to the Treasury, by influencing its actions in setting its target interest rate.

As I've explained above, when and if coin seigiorage is spent by Treasury, reserves are added to the banking system in the trillions of dollars. But, these reserves would not be drained by debt issuance, so their existence in the system will drive the Federal Funds Rate (FFR) down to zero. If the Fed has a positive interest rate target, then it will need to pay IOR to depositors, and this will shift the bill for Federal interest over to the Fed, rather than the Treasury, taking it off budget.

Variations in PCS Options

The mainstream bloggers and commentators told the PCS story solely in terms of the theoretical availability of coins with face values in the low trillions and their potential impact on the debt ceiling conflict. But they never considered or examined a more aggressive use of PCS to change the US financial system substantially, by freeing the Treasury from its gold standard chains and the political system from fiscal policy alternatives focused first and last on their fiscal impact on deficits, debts, and misplaced solvency fears, rather than on full employment, price stability, and other public purposes. They never considered a range of PCS options and their possible wide range of impacts on economics, politics, and the federal financial system, as well as on the debt ceiling conflict.

Not even Brad Plumer. quoting the acute Jack Balkin, is thinking, for example, about very high value PCS, in the $60 T or greater range, as options that might liquidate the debt completely, and change the whole structure of how fiscal policy could be implemented. In addition, no one was thinking about the relationship between the general PCS authority and the broader government context including the Congress and the Fed.

As I've said in another place, a $60 T solution would allow Treasury to harness the authority of the Fed to fill the TGA (the public purse), so that Treasury need never issue debt again for the next 15 – 20 years, ample time to reconsider the unwise and damaging decision made by Congress in gold standard days to make the Fed independent of the Executive Branch and unaccountable to the public. That solution would also make the debt ceiling issue a dead letter, to the point where that legislation could easily be repealed over the next few years, since no one would expect to use it again.

When one proposes a very high value PCS solution, almost the first objection, after getting over the shock of hearing or seeing the proposal, is that either repayment of the debt, or deficit spending using seigniorage rather than debt issuance would be inflationary. That consideration made it into the mainstream posts. I'll consider the inflation objection at length in my next post. However it's also already been considered and evaluated in past writings by myself, and also by Scott Fullwiler. The bottom line, however, is that debt repayment won't be inflationary; and that deficit spending using seigniorage, also won't be inflationary in itself.

Any inflation effect will result from unwise and excessive Congressional deficit spending past the point of full employment. It will have nothing to do with using seigniorage credits rather than credits accumulated through bond sales for deficit spending.

If the mainstream had considered a wide range of PCS options, then one among them would have caught the broader PCS story, not that PCS could help the President over his current hump with the Republicans; but that it can remove many of the Treasury's gold standard-based constraints and, in the process, free up progressive advocates to push for solutions to most of our acute policy problems without always having to fight the “we can't afford it, because we're running out of money and what will we do about the burden on our grandchildren,” battle. If used properly, PCS can end all current justifications for austerity, debt, and deficit reduction in public spending. It can free progressives to build the Green New Deal and with it a bright future for America. The mainstream bloggers have missed all that by their narrow focus on the Trillion Dollar Coin and the debt ceiling rather than on PCS and its more general implications and potential significance if used.

Why?

One important question, is why the mainstream bloggers who are interested in the PCS idea haven't explored options other than the band-aid option of a few trillions in coin seigniorage to get by the debt ceiling for a little while. Why couldn't they see PCS more broadly than they do and explore the idea to begin to understand the likely impact of it generally as well as alternative PCS options. What's holding them back? Is it the impact of busy lives and hectic days? Is it the time they spend on the telephone or in email communications with other mainstream bloggers and insiders in the Washington/New York village? Is it that they consciously or unconsciously shy away from ideas that might lead them to advocate policies that would actually change the system of political economy we have now?

I cannot say. But what I do know is that their examination of platinum coin seigniorage in the context of the debt ceiling crisis, and otherwise, is too narrow and superficial too serve us well. We need deeper thinking and more detailed exploration of this relatively new idea, and its implications.

But the sudden waves of blogging by the mainstream when debt ceiling crises approach, aren't giving us any of that. What they're giving us instead, is an echo chamber treatment of the TDC, not the daring explorations of a new idea, very high face value platinum coin seigniorage, that we have a right to expect from a free press.

(Cross-posted from New Economic Perspectives.)

New MSM Trillion Dollar Coin Wave Misses the Big Story: Bradford and Plumer

Joseph M. Firestone — Fri, 14 Dec 2012 00:31:44 -0500

In my last three posts, I've critiqued the new wave of mainstream posts and commentary on Platinum Coin Seigniorage (PCS) on my way to making the case that the MSM are missing "the big story" about PCS. These include posts by Pethokoukis, Wiesenthal, Carney, Drum, Yglesias, Yglesias, and an MSNBC cable segment by Chris Hayes. All of these have looked at PCS in terms of the Trillion Dollar Coin (TDC) and its possible impact on the impending debt ceiling shakedown. None have viewed it from a broader point of view. Let's now look at commentaries by Harry Bradford, and Brad Plumer.

Harry Bradford

Harry Bradford posted on the possibility of minting two $1 T platinum coins. He does the journo thing of citing a bunch of people saying this or that about aspects of the TDC proposal while doing very little evaluation and analysis. More or less, his post is just a ﾓhe said, she saidﾔ treatment.

Bradford begins by citing Chris Krueger's Guggenheim report, and cites Krueger's opinion that using the coin option might be inflationary, and might trigger a wave of law suits, Of course, I've already indicated above that neither of these things are likely to happen and that Krueger offers no reason for thinking these two effects would come to pass. But Bradford takes Krueger's view at face value.

He then quotes one economist as telling the Washington Post that "A government shutdown is much more straightforward" than using PCS. In reply to which one might ask: more straightforward for who? The journalists who have to write about it and won't have to research PCS beyond the TDC meme, or the millions of people who will suffer economic hardship for at least some period of time because the President decided to engage in that kind of brinksmanship, rather than just mint a platinum coin with a high enough face value to take the debt ceiling off the table as a negotiating tactic supporting the strategy of "shock doctrine" designed to emasculate the social safety net?

Bradford then cites Pethokoukis as saying that using the coin might cause inflation, a point I examined here, indicating that Pethokoukis was following Krueger's opinion and that Krueger's opinion, was just that, a statement supported by no argument at all.

Then Bradford points out that others incuding WaPo's Brad Plumer, don't believe it would cause inflation since the money from the coin would not be directly spent into the economy. And he ends by indicating that in July 2011 Felix Salmon wrote that if the coin were used, then investor confidence in the US might be damaged; but that I debated that view in a post at Naked Capitalism.

Bradford neither tells us why Salmon thought investor confidence might be lost, nor why I disagreed with him. As it happens, Salmon thought that using the platinum coin would cause the US to lose reserve currency status. I argued against that point by questioning why that would happen as long as we were paying our debts with the seigniorage. I also pointed out that it would be very difficult to find a substitute for USD, and went over the difficulties, on a case-by-case basis, involved in shifting the reserve currency to another nation.

Brad Plumer

Brad Plumer's post "Could two platinum coins solve the debt-ceiling crisis?" touches the various bases already reviewed above, including calling the coin and other options for getting around the Congressional prohibition, "wacky," while quoting the Peterson Institute for International Economics's Joseph Gagnon to the effect that using the the two coins would not be inflationary, because the Government would just be using the proceeds to spend at existing levels. This part is correct, of course.

Then Plumer adds something new to the discussion:

This strategy is hardly risk-free. Opponents could plausibly argue that the original law was intended to set rules around commemorative coins, not to finance the operations of the government. And, of course, the political blowback would be fierce.

Indeed, even Balkin now says that he thinks the platinum-coin option is too risky. If Congress can't or won't lift the debt ceiling, then most likely the Obama administration would have to start shutting down parts of government so that it doesn't default on its debt. That, in theory, would prod Congress to act.

"All those other ideas [like the platinum coin option] are very uncertain, and they could lead to complicated litigation," says Balkin. "A government shutdown is much more straightforward."

Plumer is right that the political blowback would be fierce if the President used the PCS option. That's why I think it's best for the President to use it in a way that introduces definitive changes in the Treasury's authority to spend Congressional appropriations without borrowing, and in the political context of fiscal politics by creating the wherewithal to pay off the current debt. I favor minting a $60 T proof platinum coin to do that, to which the political blowback would be still more fierce. But, if one is going to get fierce political blowback in the first place then one may as well get it for changing something fundamental, rather than for using a band-aid over a short-term problem (the debt ceiling). For reasons I've outlined in this post and this one, I think minting a $60 T coin, would be a political game-changer for progressives and can build enough popular support for the President to survive any political blowback.

But as Plumer says, Jack Balkin now thinks that the platinum coin option is too risky to use, not only for political reasons; but also because he thinks it would spawn complicated litigation. It may spawn litigation challenging the President's action based on the intent of the law. But as I argued above, suing and winning based on the question of Congressional intent is very difficult and tests the expertise of justices who like to stick to the text of legislation, and also there is the question of standing.

Balkin thinks that it's more "straightforward" for the President, in case of Republican intransigence, to end the debt ceiling crisis by prioritizing spending with bond holders first on the priority list, and with gradual shut downs of portions of the Government as revenue shortages require. I agree with Balkin that this way of handling the situation will eventually work for the President politically and the Republicans will be blamed as they were in 1995 for the shutdown.

However, many people will suffer the effects of the shutdown; so for them this is not a "straightforward" course; but one that introduces many more complications into their lives than the President minting a $60 T platinum coin and then braving political blowback and litigation, and perhaps attempts at impeachment by the House.

It's worth noting that Jack Balkin has just posted an excellent argument at the Atlantic for his preferred strategy of pursuing the government shutdown course, and a version at his own blog that refers to PCS.

In the one on his blog he says:

Still others have begun discussing alternatives like trillion dollar platinum coins and the sale of exploding options, which I discussed during the 2011 debt ceiling crisis. These two ideas are quite interesting theoretically, but they are practically irrelevant.

Why? He doesn't make that clear except to go on to explain why the government shut down strategy will work. And later on in the post he says:

In fact, if the president ignored the debt ceiling and issued his own bonds, or if he publicly announced that he would mint trillion dollar coins or sell an exploding option to the Federal Reserve, he might lose the high ground in the standoff and actually be politically weakened. First, Republicans would feel no obligation to raise the debt ceiling because Obama would have taken all the pressure off them, and government functions would continue normally. Second, any of these strategies would give Republicans the opportunity to go on the attack. They would insist that Obama was acting illegally, go to court to stop him, and possibly even try to impeach him.

I agree with this, but only if Obama were to chose one of the low trillion dollar platinum coin options. Those are no good, because they leave the fundamental fantasy of fiscal scarcity intact. We can see that it is this kind of option Balkin is thinking about because even when PCS is used he still sees raising the debt ceiling as an issue that needs to be settled. But if a $60 T coin option were used, then the debt subject to the limit would be paid off and the debt ceiling would never be an issue, at least for the foreseeable future. In my next post, I'll get to the Big Story about PCS, the MSM commentators missed.

(Cross-posted from New Economic Perspectives.)