By now, you've heard all about the "platinum coin option", in which the president averts the next debt limit "crisis" by issuing a trillion dollar platinum coin. It's a solution right out out of The Simpsons. No seriously. It's episode twenty, season nine — "The Trouble With Trillions," in which Homer is enlisted by the FBI to retrieve a one trillion dollar bill, printed by Harry Truman — with his picture on it — to help rebuild Europe after WWII, entrusted to and stolen by Montgomery Burns.
The Simspons' trillion dollar "Truman Bill" was an absurd solution to an absurd fictional problem. The trillion dollar platinum coin, on the other hand, is an absurd solution to an equally absurd, very real problem. That's the point.
But if we're gonna mint the coin, we might as well put the right guy's face on it: Ronald Reagan.
For starters, we're talking about raising the debt ceiling. Right? Before Republicans decided to take the national economy hostage, raising the debt ceiling was so routine that it wasn't even news, and happened without much debate. It was so routine that 76 House and 17 Senate Republicans voted for clean debt ceiling hikes in the past.
It was so routine that even Ronald Reagan raised the debt ceiling at least 17 times. (Politifact says the debt ceiling was increase 18 times on Reagan's watch.) George H.W. Bush raised it eight times. Also, as I noted above, Republicans voted seven times to voted seven times to raise the debt ceiling under George W. Bush.
Still not convinced that putting Reagan on the trillion dollar coin, as long as we're seriously discussing it as a way out of a trumped up debt ceiling "crisis" is the right thing to do? Dave already explained how Ronald Reagan turned the the biggest creditor nation into the biggest debtor nation.
It seems that you can look at a chart of almost anything and right around 1981 or soon after you’ll see the chart make a sharp change in direction, and probably not in a good way. And I really do mean almost anything, from economics to trade to infrastructure to … well almost anything. I spent some time looking for charts of things, and here are just a few examples. In each of the charts below look for the year 1981, when Reagan took office.
Conservative policies transformed the United States from the largest creditor nation to the largest debtor nation in just a few years, and it has only gotten worse since then.
And the centennial of Reagan's birth inspired me to revisit that story.
As Dave said in his post,. take a look at a chart of almost anything, and you’ll notice that right around 1981 things take a sharp turn in the wrong direction — that is, for just about everyone but the wealthiest 1%.
Conservative policies transformed the United States from the largest creditor nation to the largest debtor nation in just a few years.
And it started with Reagan. Anyone who’s wringing their hands about America’s debt and China’s ownership of it has Reagan to thank, as Reagan’s former budget director David Stockmanrecently explained to David Corn.
Here’s how Stockman tells the tale. In the ’80s, Reagan and his White House crew were eager to cut income taxes across the board. The aim, he asserts, was to fix the slumping economy, not to starve the beast of big government. Republican leaders on the Hill were initially skeptical—they insisted that the White House pass spending cuts before Congress tackled the tax side. "The honest-to-goodness fact," Stockman says, "is that in February 1981, there wasn’t close to a Republican majority for tax cuts without any accompanying or coupled spending cuts. The idea of supply-side in its purest form"—that tax cuts fuel economic growth that yields increased tax revenues—"was only embraced by a handful of junior Republicans, plus Jack Kemp."
The Reagan administration hardly minded proposing massive cuts to both taxes and spending. But then things went haywire, Stockman notes. The tax cut ballooned from $500 billion over five years to $1 trillion after lobbyists added special-interest tax breaks for various industries. And on the spending side, the Reagan administration went hog-wild throwing money at the Pentagon.The inevitable happened: The deficit ballooned.
…The new doctrine got a boost when it turned out you didn’t have to match tax cuts with spending cuts: The Federal Reserve was able to sell the nation’s growing debt to China and others. "It totally anesthetized the political system to the costs of deficit spending," Stockman says. "Therefore the simplistic and reckless idea that the way to stimulate the economy is to cut taxes anytime, anywhere, for any reason, became embedded [in the GOP]. It has become a religion, it has become a catechism. It’s become a mindless incantation."
As Paul Krugman wrote 2009, we weren’t always a nation of big debts. He went on to explain how it started with Reagan.
“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. … All in all, I think we hit the jackpot.” So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.
He was, as it happened, wrong about solving the problems of the thrifts. On the contrary, the bill turned the modest-sized troubles of savings-and-loan institutions into an utter catastrophe. But he was right about the legislation’s significance. And as for that jackpot — well, it finally came more than 25 years later, in the form of the worst economic crisis since the Great Depression.
…The S.& L. crisis has been written out of the Reagan hagiography, but the fact is that deregulation in effect gave the industry — whose deposits were federally insured — a license to gamble with taxpayers’ money, at best, or simply to loot it, at worst. By the time the government closed the books on the affair, taxpayers had lost $130 billion, back when that was a lot of money.
But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down.
These restrictions were put in place in the 1930s by political leaders who had just experienced a terrible financial crisis, and were trying to prevent another. But by 1980 the memory of the Depression had faded. Government, declared Reagan, is the problem, not the solution; the magic of the marketplace must be set free. And so the precautionary rules were scrapped.
Together with looser lending standards for other kinds of consumer credit, this led to a radical change in American behavior.
Three decades later, we're still living in the Reagan Ruins.
Republicans have had a lot to say about the "trillion dollar coin" option. Most of it wrong:
- "It's against the law." (Megan McArdle): Actually, it's perfectly legal. The statue in question clearly authorizes the executive branch to mint the coin. The president can mint the coin without even having to find a loophole. The language of the law itself will do quite nicely. Absent an increase in the debt ceiling, we might be legally required to mint the coin.
Just because it's absurd doesn't mean it's illegal. After all, according to Supreme Court Justice Antonin Scalia, the Second Amendment gives me the right to enough weaponry to take out a couple of city blocks, up to and including shoulder-held rocket launchers — nuclear-tipped, even — for no other reason than I want to. Absurd? Yes. But not illegal, according to Justice Scalia.
- "Grown-ups don't mint trillion dollar coins." (Felix Salmon, Maura Pennington): You want to talk about grow-ups? Seriously? To call them clowns would be an insult to self-respecting clowns. "Grow-up" implies responsibility, and this Congress has shown no responsibility. Seriously. Is it "grown-up" damn near crash the economy and threaten to do it again? Its it responsible to threaten to default on the countries debts? Debts we incurred thanks to the votes of many of the Republicans in Congress, during the Bush administration?
Is it "grown-up" to make messes that you can't clean up? Is it "grown-up" to threaten to hold your breath until you get your way? Would anyone be surprised if that turns out to be the GOP's next tactic?
- "It's not very popular with Americans." (Doug Powers @ MichelleMalkin.Com): Neither is Congress. (See above.) Here are a few things more (and less) popular than Congress:
- "There's not enough platinum." (NRCC): Doesn't matter, because the government doesn't need $1 trillion worth of platinum to mint the coin. Wanna guess how much copper is in a penny? About $0.0056018 worth, if it's a post-1982 penny.
Republicans may not like the idea, but it's not illegal, unconstitutional, or undoable. In fact, a former head of the U.S. Mint explained exactly how it could work.
* In minting a $1 trillion platinum coin, the Treasury Secretary would be exercising authority that Congress has granted routinely for more than 220 years. The Secretary’s authority is derived from an Act of Congress (in fact, a GOP Congress) under power expressly granted to Congress in the Constitution (Article 1, Section 8). What is unusual about the law is that it gives the Secretary discretion regarding all specifications of the coin, including denominations.
* The accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the Treasury’s general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar.
* Once the debt limit is raised, the Fed could ship the coin back to the Mint where the accounting treatment would be reversed and the coin melted. The coin would never be “issued” or circulated and bonds would not be needed to back the coin.
* There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books, and the coin would be melted.
* This does not raise the debt limit so it can’t be characterized as circumventing congressional authority over the debt limit. Rather, it delays when the debt limit is reached. Those who claim otherwise are misinformed or pursuing an agenda.
Apparently, the White House is not ruling out minting the coin. Who can blame them? It's a means of getting some of the nation's business done, in spite of the most "Do Nothing" Congress any president's had to deal with.
Is it extreme? Yes, but no more extreme than the alternative:
But ultimately, the platinum coin is an idiotic solution to an idiotic problem. Congress has given the Treasury a series of mutually exclusive instructions. If Congress can’t pass a debt ceiling increase, the choices that Obama and the Treasury face will all be bad ones. Is suspending Social Security checks or payments to military contractors a more appropriate step than exploiting the platinum coin loophole? Both would have real consequences as well, either for seniors trying to scratch by or for government contractors trying to make payroll (not to mention more credit rating downgrades for the United States).
The platinum coin gambit could be terrible for the U.S. government’s long-term standing as a premier destination for global capital. This is a moment for Republicans to take responsibility for governing and to accept the fact that their leverage is limited with control of only one house of Congress. But if the alternative truly is default, a crazy coin option may indeed be less bad than the alternatives.
If the White House decides to mint the coin, the Treasury should put Reagan's picture on it. And if I were president Obama, just for fun I'd drill a hole through it, put it on a chain, and wear it around my neck at the next State of the Union. And that's reasons 1,345,839 why I'll probably never be president.