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The Platinum Coin Idea Is Officially Dead

Platinum Coin

Ezra Klein passes along the news that the Treasury Department and the Federal Reserve Board have officially shot down the idea of minting a Platinum Coin as a way to get around the debt ceiling:

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.

I’m sure that we’ll hear complaints from many on the left that the Administration should not have released this statement and instead kept the threat of a Platinum Coin hanging out there as a bargaining chip in the upcoming negotiations with the House and Senate Republican leadership. However, as I’ve noted before, I don’t think that the advocates of the Platinum Coin strategy ever had a realistic view of how Republicans, even moderate Republicans, would react to something as egregiously extra-legal as this. Instead of “solving” the debt ceiling crisis, minting a Platinum Coin would likely exacerbate it and, in the process, create a Constitutional crisis that would likely sour relations in Washington between the parties even more than they already are for the remainder of Obama’s Presidency.

Now that we’ve put that silly idea out of the way, can we please move on to the serious part where the President and Congress actually start negotiating with each other?

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Rafer Janders says:

    Now that we’ve put that silly idea out of the way, can we please move on to the serious part where the President and Congress actually start negotiating with each other?

    Um, what’s to negotiate about? Congress has already mandated that the money be spent. Now Congress must raise the debt ceiling in order to enable the government to borrow the money to pay those bills. What does the President have to do with any of this?

    Highly-rated. Helpful or Unhelpful: Thumb up 40 Thumb down 1

  2. Rafer Janders says:

    Now that we’ve put that silly idea out of the way, can we please move on to the serious part where the President and Congress actually start negotiating with each other?

    Once again, please note Doug’s immediate assumption and acceptance that the Republicans are going to try and default on the country’s debt and sabotage the economy. It’s just a fact of life! No need to condemn it!

    A lot of time and effort spent criticizing the Democrats’ response to the GOP’s failure to raise the debt ceiling, no time at all spent criticizing the GOP’s failure to raise the debt ceiling.

    Highly-rated. Helpful or Unhelpful: Thumb up 31 Thumb down 1

  3. Rafer,

    Both this time around and back in the summer of 2011 I have condemned the debt kamikazees vigorously. However, political reality tells us that there will have to be negotiations over this, and the sequester, between the Executive and Legislative Branches. Trying to deny that reality doesn’t accomplish a thing.

    Poorly-rated. Helpful or Unhelpful: Thumb up 4 Thumb down 29

  4. michael reynolds says:

    Great. Now I’ll never complete my coin collection.

    Highly-rated. Helpful or Unhelpful: Thumb up 22 Thumb down 2

  5. Gustopher says:

    If the Republicans don’t raise the debt limit, what are the options? Can Obama pick and choose what to fund with them money that is there?

    Do Republicans really want to hand him that power?

    Or, does he have to just pay interest and shut the rest down?

    Either way, I expect the Republicans to go for impeachment.

    Like or Dislike: Thumb up 6 Thumb down 0

  6. Rafer Janders says:

    @Doug Mataconis:

    Just because someone is holding a gun to their own head doesn’t actually mean I have to negotiate with them.

    Highly-rated. Helpful or Unhelpful: Thumb up 19 Thumb down 2

  7. C. Clavin says:

    Mint the dang coin.

    Like or Dislike: Thumb up 8 Thumb down 2

  8. Ben Wolf says:

    . . . and the President surrenders his weapons before the battle even begins. The man has a real talent for snatching defeat from the jaws of victory.

    Like or Dislike: Thumb up 4 Thumb down 0

  9. john personna says:

    Come on Doug, keep your eye on the most sane solution.

    The debt limit is a follow-on effect of prior spending. When the debt limit is reached, nothing can be done about prior spending. It is “prior.”

    Now, were the limit a purely abstract number, one might say “let’s use this opportunity to talk, before raising it again.” You might say “let’s stop a minute …”

    But the limit is not actually an abstract number. It is an accounting point in the business operations of the United States government. “Stopping” halts the business operations of the United States government.

    There is no positive reason to stop everything at such a point. It has nothing but negatives for everyone involved.

    Thus, it becomes an ultimatum game.

    Like or Dislike: Thumb up 6 Thumb down 1

  10. john personna says:

    (Ultimatum games are not really “negotiation” in any meaningful sense of the word.)

    Like or Dislike: Thumb up 4 Thumb down 1

  11. john personna says:

    Shorter Doug: you must fear the ultimatum, or you are not negotiating

    Like or Dislike: Thumb up 10 Thumb down 0

  12. ChrisNBama says:

    @Doug Mataconis:

    I’m with Rafer on this. The constitution says that the congress has the power of the purse. There is no role for the president in negotiating with congress over its own statutes.

    Like or Dislike: Thumb up 11 Thumb down 1

  13. Mr. Prosser says:

    According to Kevin Drum US revenue is about 200 billion/month and payment on debt is about 20 billion/month. The president can decide how to spend the 180 billion which yes, very definitely gives him power on what he and the executive branch will and will not fund. This is shades of the Gingrich debacle.

    Like or Dislike: Thumb up 3 Thumb down 0

  14. stonetools says:

    Obama is a man of many talents, but negotiating skills isn’t one of them.
    Maybe he’ll hold fast to his pledge not to negotiate ( I sincerely hope so), but It doesn’t look good.

    GOP leadership has shown zero hesitancy in bucking systemic convention (e.g. filibustering Administration nominees and taking us to the brink of default) to obstruct the president’s ability to effectively govern. Removing both the platinum coin and the constitutional option—without the debt ceiling included in the fiscal cliff bargain—means that the White House isn’t holding many cards. Interestingly, all that’s left is the president’s pledge not to negotiate. Which is an odd card to hold in any negotiation. Anybody who supports sane fiscal policy, at this point, is left simply to hope that he doesn’t blink.

    Essentially, if the House Republicans say, ” We’re not going to raise the debt ceiling, and we don’t care if the government closes down or the economy tanks!”, then the President has no option but to start closing down the government and watch helplessly as the economy nose dives. There’s no fallback. Now he can take his case to the American people a la Clinton, and probably win, but the economy was much more robust then. He’s taking a bigger risk, which he must know. Maybe he is sure that the business community and the House leadership can rein in the House Republican caucus before things get too bad. We’ll see. I think he’s wrong about that, myself.Prepare for pain.

    Like or Dislike: Thumb up 0 Thumb down 0

  15. stonetools says:

    @Mr. Prosser:

    According to Kevin Drum US revenue is about 200 billion/month and payment on debt is about 20 billion/month. The president can decide how to spend the 180 billion which yes, very definitely gives him power on what he and the executive branch will and will not fund. This is shades of the Gingrich debacle.

    Problem is, that’s an average. The amount varies, and can dip below the amount required for servicing the debt. We’ll see how understanding the lenders are.

    As the Bipartisan Policy Center lays out in an essential presentation, payment prioritization is hugely problematic in two ways. One is that 40 percent of government spending is a lot, and there is no way to shut down two-fifths of the government without stopping activities of great importance.

    The other — not appreciated by most of prioritzation’s proponents — is that the federal government’s receipts and expenditures are lumpy, and just because it could afford 60 percent of scheduled spending on average doesn’t mean it could afford that on any given day.

    It’s not clear if prioritization is even legal. There’s no law anywhere that says the President can prioritize debt, and in what manner.

    Like or Dislike: Thumb up 2 Thumb down 1

  16. Mr. Prosser says:

    @stonetools: Is there any law that says he can’t prioritize?

    Like or Dislike: Thumb up 3 Thumb down 0

  17. rudderpedals says:

    can we please move on to the serious part where the President and Congress actually start negotiating with each other?

    The President has already said he won’t negotiate with the hostage takers on their debt limit. Request denied.

    Like or Dislike: Thumb up 12 Thumb down 2

  18. When will Americans see the situation as it really exists in our country!! All of the higher up politicians including the past several presidents are bought and paid for. They all facilitate this country’s rising debt in order to give the world central independent bank “The Federal Reserve” continued control over all Americans and our country’s economy!!
    America Wake Up Now

    Like or Dislike: Thumb up 0 Thumb down 12

  19. Rafer Janders says:

    @Doug Mataconis:

    However, political reality tells us that there will have to be negotiations over this, and the sequester, between the Executive and Legislative Branches. Trying to deny that reality doesn’t accomplish a thing.

    Political reality does not exist as free-floating fact in nature, but is as we create it by our actions. If the President announces that he will not negotiate on the debt ceiling — and sticks to that promise — then that also becomes political reality, and the House GOP trying to deny that reality won’t accomplish a thing.

    Like or Dislike: Thumb up 9 Thumb down 0

  20. Argon says:

    The Franklin Mint should press the coin and sell it through a late-night infomercial.

    Like or Dislike: Thumb up 5 Thumb down 0

  21. john personna says:

    @Argon:

    You know the Franklin CEO goes to sleep every night DREAMING of commemorative copies, coated in 0.00001 ounce pure platinum.

    Like or Dislike: Thumb up 1 Thumb down 0

  22. stonetools says:

    Well, we now know what the White House strategy is:

    “There are only two options to deal with the debt limit: Congress can pay its bills or they can fail to act and put the nation into default,” said Press Secretary Jay Carney. “When Congressional Republicans played politics with this issue last time putting us at the edge of default, it was a blow to our economic recovery, causing our nation to be downgraded. The President and the American people won’t tolerate Congressional Republicans holding the American economy hostage again simply so they can force disastrous cuts to Medicare and other programs the middle class depend on while protecting the wealthy. Congress needs to do its job.”

    Read more: http://www.businessinsider.com/treasury-rules-out-trillion-dollar-platinum-coin-2013-1#ixzz2HoS1paaE

    So the White House is going to scold Congress into doing its job.

    Brilliant!

    Like or Dislike: Thumb up 1 Thumb down 0

  23. Ben Wolf says:

    @stonetools: I don’t think the President has the balls to resort to extraordinary measures. The suggestion by Coley that the Fed won’t accept the platinum coin is ridiculous; the Fed will accept a check from a bank written against nothing. There’s no specific point in the law that would render this particular form of seigniorage illegal.

    So Republicans can continue to play deficit terrorist because they know exactly what to expect of the Democrats, every time: Democrats will play by the conventional rules and negotiate from a poaition of weakness, even if they have to create it for themselves.

    Like or Dislike: Thumb up 3 Thumb down 0

  24. Ben Wolf says:

    @Ben Wolf: poaition = position

    Like or Dislike: Thumb up 1 Thumb down 0

  25. Andre Kenji says:

    @Ben Wolf:

    There’s no specific point in the law that would render this particular form of seigniorage illegal.

    The law only authorizes the Treasury Secretary to mint platinum *bullion* coins. So, Timothy Geithner would have to mint a coin of 50 ton of platinum and then send it to the Fed.

    Like or Dislike: Thumb up 0 Thumb down 0

  26. michael reynolds says:

    @Ben Wolf:

    Obama’s a conventional thinker. Which is why I’ve always found it hysterical that the right wing tries to cast him as radical. He’s about as radical as Eisenhower. I like the guy but he’s definitely an inside-the-box thinker.

    Like or Dislike: Thumb up 4 Thumb down 1

  27. Herb says:

    You know what else is officially dead? The Broncos season…..

    ARGH.

    Like or Dislike: Thumb up 1 Thumb down 0

  28. Console says:

    @Andre Kenji:

    That’s sort of an absurd bit of semantics. The trillion dollar platinum coin would simply be a bullion coin (i.e. it would be made out of platinum) whose nominal value is more than it’s value as a precious metal. Legal tender is legal tender. If the gold price plummets, a US gold coin doesn’t magically become worth less than it’s denominational value. A merchant still has to accept the coin for it’s face value.

    It’s unusual in that a bullion coin is typically considered an investment in the metallic value of the coin. But like I said, that’s an absurd bit of semantics to require a platinum coin be worth a trillion dollars, since any bullion coin’s intrinsic value could become worth less than what’s printed on the coin.

    Bullion is simply that. Precious metal melted together in a form that can be easily used in trade and commerce.

    Like or Dislike: Thumb up 2 Thumb down 0

  29. Andy says:

    @Herb: I know, depressing. :(

    Like or Dislike: Thumb up 0 Thumb down 0

  30. Jeremy R says:

    This probably needed to be shut down, especially as higher profile folks started endorsing #mintthecoin. Assuming the White House feels all the executive branch debt ceiling work arounds will cause nearly as much turmoil as the technical default itself you can understand why. As conventional wisdom developed that there was a clever offramp from the crisis you risked the GOP feeling their brinkmanship was a less dangerous prospect, making it more likely to occur. Also, the politics of forcing the administration into minting an easily demagogued trillion dollar coin also may have further tempted the Republicans.

    Like or Dislike: Thumb up 2 Thumb down 0

  31. Jeremy R says:

    @Doug Mataconis:

    Both this time around and back in the summer of 2011 I have condemned the debt kamikazees vigorously. However, political reality tells us that there will have to be negotiations over this, and the sequester, between the Executive and Legislative Branches.

    Republican leadership has already indicated they’re considered rolling monthly debt ceiling crises, using each as an inflection point to leverage more cuts. Tying concessions to debt ceiling increases clearly encourages this behavior. Obviously negotiations will and should occur around the expiring continuing resolution and the sequester, but normalizing the debt ceiling ransomings, even just rhetorically, courts disaster.

    Like or Dislike: Thumb up 8 Thumb down 0

  32. cat says:

    @stonetools: Either way, the Economy suffers. Cuts equal more austerity & we’ve already taken almost $200B out of the Economy with the expiration of the Payroll tax cut expiring. You’re cutting growth when you cut spending. That’s why most of Europe is in Recession. We need infrastructure or something to help with growth this year. We still have the sequester that will also kill growth. The gop is killing the economy & the president is letting them.

    Like or Dislike: Thumb up 2 Thumb down 1

  33. gVOR08 says:

    The White House may be foolishly giving up a weapon, or they may be a dimension or two ahead of us in this chess game. The attitude seems to be, “We don’t need no steenking platinum coin, we got this.”

    Booman seems to have seen this clearly, “Perhaps more importantly, I realized early on that the debate over the coin was working against us. The Republicans desperately want to avoid a complete cave-in on the debt ceiling, and the coin was giving them false hope that they could default and be bailed out by one of the most counterintuitive and difficult-to-defend stunts in the history of mankind.” http://www.boomantribune.com/story/2013/1/12/182025/932

    And the House GOPs are under a lot of pressure to fold. “The head of the Chamber (US CoC) one of the most powerful GOP-aligned interest groups in the country, is essentially saying that using the debt ceiling as leverage to force spending cuts has to stop. This comes after the Financial Services Roundtable, the Business Roundtable, and other business groups all are insisting more generally on a debt ceiling hike.”
    http://www.washingtonpost.com/blogs/plum-line/wp/2013/01/11/business-leaders-to-gop-no-more-debt-limit-hostage-taking/

    If, as GOPs believe, the business of the country is business, failing to raise the debt ceiling is no way to run a business.

    Like or Dislike: Thumb up 2 Thumb down 1

  34. Andre Kenji says:

    @Console:

    Legal tender is legal tender.

    There is no legal tender here, that´s the problem.

    Like or Dislike: Thumb up 0 Thumb down 1

  35. john personna says:

    Thaler, the (behavioral) economist nails it succinctly:

    A valuable principle of negotiation is to “never bargain with someone who does not have the power to say yes,” and Mr. Boehner has demonstrated that he lacks that power.

    more here

    Like or Dislike: Thumb up 4 Thumb down 0

  36. Davebo says:

    The White House has shot down an idea that never deserved to be taken seriously.

    Says the lawyer that should be pulling at least 100 hour per week yet has time to write 7 posts per day. Allegedly for the low low price of free.

    But hey, he’s a Libertarian right?

    Seriously Dougie. When are you going to go Galt on us and move the that new commune in Idaho?

    To say you’ve become a caricature would reflect poorly on Jon Swift.

    Like or Dislike: Thumb up 2 Thumb down 2

  37. Andre Kenji says:

    Doug Mataconis may be the worst lawyer in the world that wastes all his time with blogging, but he is right that this idea does not deserve to be taken seriously. The law ONLY authorizes the Treasury to mint bullion platinum coins, not coins that can be used as currency. It´s true that allowing the debt limit to expire is a idea that it´s even dumber(Thousands of times), but that does not mean that the media is not wasting precious airtime with that.

    C´mon, even the reporters on the nightly newscasts are mocking the idea. Besides that, all these personal attacks against James and Doug are tiring. Anyone that´s unhappy with both of them can always go to the Daily Kos, I don´t know.

    Like or Dislike: Thumb up 1 Thumb down 0

  38. rudderpedals says:

    @Andre Kenji: That’s not all the law says. See 31 U.S.C. 5112(k)

    (k) The Secretary may 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.

    Proof coins are circulating money, and the denominations bit would be the suspenders for the belt.

    Like or Dislike: Thumb up 2 Thumb down 0

  39. Pharoah Narim says:

    Its really time to start rethinking the role of the FR anyway. It’s a relic of the 20th century. The economy now has nothing in common with the economy that it was birthed into. Having money creation so far away from where actual productivity takes place is why there is imbalances and distortion–booms/busts. Sure this is pie in the sky– but decentralized money creation would ensure that money at the level where people are producing actual value and its not in places where people are looking to skim money out of other people’s value creation. There is already a groundswell on the web with crowd-sourced loans and angel investing to bypass the institutional skimmers. The very fact that the FR is loaning banks money for free and they are loaning it out at 3-4% is a huge reason why the main street recovery is tepid and will be for years–see Japan.

    I for one am not surprised Obama took the PC off the table. The super elite have been creating money for the price of paper and ink and loaning to the US Gov’t at face value plus interest for a century. Sure, they only keep a percentage of the interest paid back as the principle is retired but this is nothing but a skim. A few percent of all the debt servicing paid by the American people is good work if you can get it. The platinum coin option actually gave our citizens the chance to turn the tables on plutocrats behind the FR. Increase your profits through fiat and we’ll start paying with some fiat of our own. Perhaps the foolish exercise would have generated a serious discussion around the question: Why are sovereign governments and free people having to borrow money at interest from private banking cabals to finance civilization in the first place?

    Like or Dislike: Thumb up 1 Thumb down 0

  40. Xenos says:

    Who needs a magic platinum coin when the Senate majority is giving you blanket impeachment-proof protection to do whatever it takes to avoid default should the house fail to approve the raising of the debt ceiling?

    This is the very definition of a non-justiciable matter, so the USSC will never touch this. So the House has a choice: either raise the ceiling, or cede a huge amount of power to an executive that will be populated by Democrats for the foreseeable future.

    Like or Dislike: Thumb up 2 Thumb down 0

  41. Rafer Janders says:

    @Andre Kenji:

    There is no legal tender here, that´s the problem.

    No, of course there’s legal tender. If the government designates it as legal tender, then it’s legal tender. That’s why these funny looking pieces of green linen paper in my pocket are considered legal tender.

    Like or Dislike: Thumb up 3 Thumb down 0

  42. Rafer Janders says:

    I negotiate for a living, and one of the first rules of negotiation is, don’t get into a fight about something the other guy is going to do anyway. At the end of the day, the House GOP will vote to increase the debt ceiling, because their business puppet master won’t allow them to wreck the economy. We know it, they know it. So why give them a deal for something they already have to do?

    Like or Dislike: Thumb up 6 Thumb down 0

  43. Andre Kenji says:
  44. Andre Kenji says:

    @Pharoah Narim:

    The very fact that the FR is loaning banks money for free and they are loaning it out at 3-4% is a huge reason why the main street recovery is tepid and will be for years–see Japan.

    Not only that. Greenspan limited himself to create stock and housing bubbles in the United States, Bernanke´s free money is creating bubbles all over the Emerging World.

    Like or Dislike: Thumb up 1 Thumb down 0

  45. jukeboxgrad says:

    prosser:

    Is there any law that says he can’t prioritize?

    Yes. Link:

    the Constitution requires that spending be made in full … the Supreme Court held during the Clinton Presidency that even Congress itself cannot give the President the authority to cut spending at his discretion, through a line-item veto

    It seems that Congress might create a situation where Obama will be forced to break at least one law. It’s illegal for him to prioritize, but he has no choice, so he should do it in this manner (link):

    Perhaps the President should attempt to make everyone happy, by focusing his knife on federal spending in and for Congressional districts whose residents’ federal representatives decline to extend federal borrowing authority.

    I think Kirkland is one of the best commenters anywhere. And that’s saying a lot, since OTB has Reynolds.

    Like or Dislike: Thumb up 1 Thumb down 1

  46. anjin-san says:

    @ Herb

    Here in SF we are feeling pretty good about the decision to pass on Manning.

    Like or Dislike: Thumb up 0 Thumb down 0

  47. mattb says:

    So basically, despite all the CMC hand wringing about Obama seizing power via “unconstitutional” executive orders, the Administration once again demonstrates deference to the Constitution and Congress.

    Just like practically every other time.

    Who-da thunk it.

    Like or Dislike: Thumb up 3 Thumb down 0

  48. An Interested Party says:

    Here in SF we are feeling pretty good about the decision to pass on Manning.

    I should think so…especially after what your team did last night…poor Manning, such glittering regular seasons…such mediocre postseasons…Ray Lewis gets to play at least one more game…

    Like or Dislike: Thumb up 0 Thumb down 0

  49. stonetools says:

    @Rafer Janders:

    I negotiate for a living, and one of the first rules of negotiation is, don’t get into a fight about something the other guy is going to do anyway.

    I’ve done negotiations too, and the way Obama negotiates is like a tutorial in what NOT to do, from negotiating with himself to narrowing his options before even getting to the table, with a tendency to cave in the crunch. Now you are sure that the plutocrats and the Republican leaders can rein in the baggers, but suppose you are wrong about that, and they refuse to raise the ceiling, then what?
    Everyone will be coming down on Obama to be “reasonable”, to be “the adult in the room”, and to “agree to common sense reforms” . Doug has already framed the argument: yes, its unfortunate that the House Republicans are so insane, but what can we do? We have to negotiate, i.e. give in to their demands

    Like or Dislike: Thumb up 2 Thumb down 0

  50. rudderpedals says:

    @Andre Kenji: Could you be more specific please? It’s not clear what you’re referring to on that page.

    Like or Dislike: Thumb up 0 Thumb down 0