Richard Day: A Philosophical Take on the Elections
PeraclesPlease: Wild and Wilder
I've always been skeptical of the two alternatives floated that Obama could use to avoid a debt ceiling standoff, but I've also liked them both and I continue to like them both far more than the option of the U.S. voluntarily defaulting on its debt, which is a silly thing considering that the U.S. controls its currency supply.
The first option was to invoke the fourteenth amendment to the Constitution, as it requires the federal government to respect the validity of federal debt. With this reasoning, Obama could just ignore a Republican refusal to raise the debt ceiling, citing higher Constitutional authority. It's neat. It'll wreck the credit markets, though. Every Treasury bond sold after the failure to raise the debt ceiling will have some legal risk attached to it and, at such low interest rates, you don't buy Treasurys (the technical plural, by the way is to add an "s" rather than write "treasuries") to take on legal risk, you buy them because you know your money is safe. Nobody is going to use Treasurys as a safe haven if Anton Scalia ultimately decides whether or not you get paid.
The other idea is to hve the Treasury mint a trillion dollar platinum coin and put it in the U.S. government account at the New York Federal Reserve. You do not need a trillion dollars worth of platinum to do this, any more than you need a nickel's worth of nickel to make a nickel (sorry, Fox News).
There's nothing wrong with this idea. Money, as we use it, is simply created by either the Treasury or the Federal Reserve. Sadly, I think that most people don't think of money that way. Every dollar is just a share of trust in the U.S. government. But people think it equates to something tangible. For historical reasons, people usually translate it into gold, silver or another precious metal like platinum. This metal fixation is just a fetish but, whatever. Obama's not going for it. Today, the Treasury said it will not seek to mint a trillion dollar coin, in what Business Insider has dubbed a "Cointrastrophe."
Minting the coin is as legal and routine as minting a nickel, but I get why Obama wouldn't do it. There is a point, in economic matters, where sentiment is important. People have to believe in the whole capitalist endeavor for it to work and the trillion dollar coin, while legal and even ordinary, might spook people. Well, it definitely would. As ubiquitous as money is, we don't often discuss what it means. The idea of "printing money" is widely accepted but not so widely examined. Obama knows that a trillion dollar coin will scare Americans, even though the Fed could easily "sterilize" its existence by selling Treasury bonds from its own balance sheets.
I've rambled here, but I wanted to explore both ideas. They are novel notions. They are less absurd than default, which is what Republicans are proposing. They are less absurd, in fact, than the existence of the debt ceiling law in the first place. Congress creates and passes the budget. It directs the executive to spend. If the budget is in deficit, it adds to the debt. If it is in surplus, it subtracts from it. Congress doesn't need a debt ceiling. Congress has total control of annual deficits and the debt, through its budgeting authority. Further, the debt ceiling actually contravenes the Constitutional authority of Congress. If Congress tells the executive to spend $800 billion on a nuclear submarine, the executive must spend. A debt ceiling doesn't constrain the executive branch so much as it contravenes spending orders given by Congress. That's silly.
In a way, taking the 14 amendment and the trillion dollar coin off the table is just bad, Obama-style negotiation. He should keep these threats, even though he won't use them. I don't believe Obama wants to attack Iran, but he always leaves it "on the table." The platinum coin should always be "on the table."
It's off because Obama hates gimmicks. I do respect that. We have two good gimmicks that we could use to dodge a debt ceiling fight, but Obama's not having it. He's going to make the Republicans go to the edge. That could be dangerous. They're extremists. But Obama isn't playing games. He has, as he said he had long ago, put away the toys.
Maybe it'll work!