Archive for the ‘Treasury Department’ Category


January 11, 2013

There are a ton of unconstitutional ways that the executive branch (the President and his various assigns) could handle the manufactured fiscal “crisis” currently filling the Congressional paybill. The President could do what a lot of people are doing and misread the 14th Amendment’s “public debt” clause to mean that the President has unilateral power to raise the self-imposed “debt ceiling,” or even to directly cut and authorize checks drawn on the Federal Reserve or on the Treasury to pay outstanding bills. The Treasury department could do likewise. Or, we could just default on or obligations and let the chips fall where they may.

But there is another way. A way that started as a half-tongue-in-cheek but has become a startlingly plausible alternative to letting Congress play out its sectarian shennanigans until the same thing that always happens happens (we hit the arbitrary, self-imposed deadline and then extend it a few months). A way that just screams “crazy enough to work.” We could just mint a $1 trillion (or $2 trillion, or $10 trillion)-dollar platinum coin, drop it in the ol’ piggy bank, and use it to pay down existing debts or extending our borrowing power in the future.

Consider it quantitative easing on steroids. Instead of diverting the money from elsewhere, at the expense of the very programs that are at stake in the existing debt ceiling fight, the money comes from where all money comes from: nowhere in particular.

The easy question is: is it legal? The short answer is, yes, but it’s complicated why it’s legal. The Constitution authorizes Congress and Congress alone to mint and produce currency. But the Constitution, and there’s too much caselaw agreeing with this point to even know where to begin citing, permits Congress to delegate its authority to various federal and even some state agencies. One of those agencies, staffed by executive appointment with the advise of the Senate and subject to Congressional funding allocaton, is the Department of the Treasury, one of whose many tasks is to oversee the creation of currency (not to be confused with the creation of money). Down to the size in millimeters and metal composition ratios, there are very close controls on the standard denominations.

But there’s on ambiguous coinage allocation: platinum coins. Congress saw fit to create, under 31 USC §5112, the discretionary power of the to Secretary of the Treasury to “mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

In short, whether or not the trillion-dollar coin gets minted is legally up to the sole and complete discretion of the Treasury Department. In practical terms the Treasury would probably not take such extravagant liberties with its currency powers without the advise of the President, the Congress, or both, but legally speaking, Congress has fully delegated its authority in minting to the Treasury, and as part of that delegation, it let the Secretary determine the value of platinum coins at the time of their minting.

Why would Congress do that? Because creating discretionary powers in fiscal bodies is a really good way to give them power to deal with sudden catastrophes. Probably what Congress had in mind was something like, suppose there were a sudden global shortage either of copper or of liquidity in copper assets. Better give the Treasury the power to start churning out one-cent platinum coins at a moment’s notice until the supply chain settles down. Seems sensible enough, but unfortunately, when you make open-ended crisis management rules, you create open-ended crisis management rules. The Treasury currently has the effective power to #mintthecoin at its sole discretion, thanks to a well-intentioned Congressional delegation written by people who, shockingly, did not foresee the monumental incompetence that has drawn us once again to the shores of sovereign insolvency.

So yes, it is legal. Is it a good idea? I haven’t got the economics acumen to answer this clearly, though I invite comments on that point. One thing I can say, though, is that I am skeptical of the supposed inflationary apocalypse that would result, for a few reasons. Suppose we drop a $2-trillion platinum coin into the Treasury tomorrow, apportioned specifically for existing liabilities, ie, bills the Congress already has on its tab. That means that money going out to pay those debts would not really be any new money, it would merely be currency representing amounts already accounted for by the various states, firms, and individuals (a huge fraction of America’s sovereign debt is owned by private citizens in the form of T-bills and the Social Security trust fund, for example). But it’s still money that, originally, would have to be diverted from elsewhere, that is now coming from nowhere in particular (which we do in slow-motion in normal economic circumstances).

Against the alternative, though, #mintthecoin is fast becoming a perfectly good idea. Congress has proven incapable of addressing the issue; like bad law school students, they let the paperwork get closer and closer to the deadline, they stress out over it and raise hew and cry over basic principles of government, then it comes down to the wire and they push the problem off by asking the global markets for a brief extension while the various sides recalibrate their political schemes to better blame the other party for the next round of premeditated negotiation failures. I say, concede that Congress has backed the economy into a corner, concede that representative democracy occasionally yields such absurd results as this, mint the coin, and then let Congress explain what its better alternative was. As Harvard Law School’s resident internationally-renowned sage of the law Laurence Tribe explains:

 This is a situation where the political and economic considerations, not the legal considerations, have to drive the decision-making about this option. It’s certainly a lot better from just about every perspective than having the nation stuck on either horn of the very real dilemma you outlined below, which I agree offers no plausible way out as long as enough leaders in Congress insist on playing Russian Roulette with our economy and risking our full faith and credit by using the debt ceiling as a bargaining chip as they are threatening to do.