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 Washington Post | Wonkblog

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.
Treasury: We won’t mint a platinum coin to sidestep the debt ceiling
Ezra Klein
(h/t Kevin Fathi via email)
What I don't understand is how a Treasury official could say this on his own since it would be a decision of the secretary, and the secretary would not act on his own when the White House has seemingly kept the option on the table by the WH spokesman refusing to deny it in a press conference. Anyone have any insight into this?
29 comments:
Sue the Fed
The Federal Reserve would not accept it? But they accept a check, drawn on nothing?
I'm with Ron Paul...end the Fed.
Anyway, I said the president would not use the coin. Obama = No Balls.
I added this to the post after it was put up.
What I don't understand is how a Treasury official could say this on his own since it would be a decision of the secretary, and the secretary would not act on his own when the White House has seemingly kept the option on the table by the WH spokesman refusing to deny it in a press conference. Anyone have any insight into this?
Looks to me like it must have been cleared through the president, as others have concluded. Very strange way to make the announcement though. Looks like the president is avoiding taking the responsibility himself. Bad messaging, IMHO.
The Fed knows the debt masters must not be cut out of their pound of flesh, evidently the trillion dollar coin would do this. Now I am totally for it. The Fed masters must fear that the free lunch at the expense of american workers, and the corporates states of america must continue. How the hell did the corporate pigs get so much profits and the american people so indebted. The Fed system thats how.
If he does the coin, the whole edifice collapses...
Tom, I think Tribe's words you posted the other day were "it is legal, but now a political decision"... so they have made their political decision looks like...
The press has to stay on this now... Id like to see someone absolutely GRILL Bernanke on the coin issue now since the Fed has now been drawn in. ... I bet Bernanke wouldnt even know how to deal with the issue and would exhibit embarrassing answers to pointed questions about operational details... he's a weak link...
Can we get friendly press to break Bernanke's balls on this??? He'll crack imo...
rsp,
Obama is unnecessarily determined to fuck the poor. It's as simple as that. He's a joke.
REading comments at various places, it seems that the majority opinion is similar to the one I advanced some time ago, namely, that Obama knows that the GOP position is a political loser for them and he is giving them the rope to hang themselves with, even if it involves shutting down the govt and producing economic contraction. The GOP would be blamed and the party would not recover easily, especially facing the demographic with their current political stance. In other words, the GOP as we know it would be finished as anything but a minor player with clout at the state level. But they could never hope to win another national election without a complete overhaul.
Unlike most, I had some sympathy for Klein's position: the TPC was a politically risky proposition, requiring careful consideration. In short, something not to toy with.
I also think I understand the official position: either the Republican Congress assume the responsibility for the eventual consequences of their intransigence, or they let Obama do his job.
But, frankly, the decision to definitely renounce the mere possibility of the TPC seems utterly stupid and cowardly.
In the same vain as the tried and tested Obama "negotiating from a middle-ground" strategy: before negotiations started, you are already making concessions.
These people should visit both a neurologist and an endocrinologist: they not only lack brains, they also seem to lack testosterone.
The politics of the coin were never in Obama's favor and thus I don't think the coin would ever have been used by him, but like you said, why not have it at least for leverage?
At the last press conference, Carney was cagey. Good messaging. Should have left it at that, IMHO.
If you read the Administration's statement at face value, it makes perfect sense in terms of President Obama's political incentives (given that they do not understand how money works).
By ruling out the trillion dollar coin, the 14th amendment, and any other work-arounds that might come up, the Obama administration is pursuing a deliberate strategy - the strategy known popularly as burning one's bridges" (or boats).
Obama is following in the well-worn footsteps of Cortés, who sank his ships upon arrival in Mexico, the ancient Chinese general Xiang Yu, who ordered his troops to destroy their boats and supplies before the battle of Julu ("break the kettles and sink the boats"!), and the ancient Romans, who routinely burned their boats or bridges as a deliberate tactic.
By burning ones bridges, ones own "troops" become committed to victory - because they know that with no way out, the only options are victory or death. Just as importantly, the enemy "troops" get the same message - with the effect of making them more likely to flee, since they know they face a determined opponent.
So platinum coin seignorage is an ingenious idea that would have solved the technical problem of the debt ceiling, but the Obama administration is not interested in solving technical problems. Thus, if momentum should build up behind another way around the debt ceiling that the administration has not yet explicitly ruled out, such as issuing scrip, the Obama administration will rule that out as well.
The administration realizes at this point that these self-induced crises are going to keep recurring unless something is done to cause them to stop re-occuring.
From the administration's perspective, even if the debt ceiling were to be outright abolished, and thus seemingly solved forever, that would not change this calculation. Until the House Republicans are broken and brought to heel, these crises will keep occurring in one form or another.
It is immaterial whether the crises are realized through the specific institutional forms of the debt ceiling, the annual budget process, or custom-made rube-goldberg traps like sequestration.
The Obama administration also realizes that, as long as these crises continue to occur, Obama will have no opportunity to accomplish anything at all in his second term other than ward off repeated crises.
Therefore, Obama has a political imperative that demands a final confrontation.
So, what should we expect from such a confrontation?
For the next month and a half, we can expect that Obama will repeatedly say that he will not negotiate, and Boehner will repeatedly demand spending cuts.
Boehner and the House Republicans will refuse, up until the last minute, to simply raise the debt ceiling with no concessions.
But Obama calculates that the Republicans will take the blame for any default or government shutdown.
This will of course lead to a government shutdown and/or quasi-default (in which Treasury will do everything in its power to avoid a technical default).
Unless Obama misplays his hand to the point where he rather than the Republicans begin to be blamed, this will stretch on until either Boehner and the House GOP pass a clean debt-ceiling increase, or offer up something that Obama can consider a "balanced" austerity package (including some sort of tax increases on the wealthy).
All the while, the stock market will go steadily down and the economy will suffer increasingly more and more, which will cause political pressure for a deal to mount.
And then, unless somehow the result is a clean debt-ceiling increase with sequestration either further delayed or simply ignored, the economy will take its trip down the austerity drain.
Good analysis, Matt. Sounds highly plausible to me.
@Matt,
You make interesting points, but looking at Obama's record over the last four years I can't agree with them. When has the President not folded when confronted with a streetfight? Off-hand I can't name a single instance when he hasn't given ground or given up on a point on which he had boldly stated there would be no negotiation.
The President is a vain man who wants to be The Bi-partisan, someone history will look upon as the one who brought Washington together to Do The Right Thing. I don't believe he cares about much else.
I think that the Presidents staff thinks we are out of money and borrowing from the Chinese... just like the Republicans... The math behind the coin may have educated a lot of folks but could not penetrate the thick skulls of the ones that count (yet)...
so they are going for tax increases and some form of budgetary "cuts" (raise ages/decrease length of term of benefits, etc...)
So they both can declare some sort of "victory"...
The key things are WHEN will the ceiling be increased and HOW MUCH it will be increased... the Admin needs $2T+ to get to the mid-terms imo...
If the GOP pushes this Norquist policy of raising the ceiling only for small amounts of projected cuts with the condition that it will only be raised again if the budget result hits these hard targets, and gets the Peterson idiots to endorse it, it is going to be hard for the Admin to stop it... they would be up against both the GOP AND the 'Fix the Debt" morons who are mostly Democrats...
Keep an eye on what the "Fix the Debt" morons do.... they have hardly got started yet...
rsp,
How could the Admin just mint a coin and blow off these leading leaders:
"Forty of the country’s most distinguished business leaders have signed
on to support the Campaign to Fix the Debt, joining over 2,500 small business owners and 340,000 concerned citizens. Representing every sector of the economy, these business leaders recognize the failure to address the country’s growing long-term debt will continue to jeopardize our economic recovery at home and U.S. competitiveness globally. The Campaign’s business partners urge lawmakers to work together in the coming months to stabilize and gradually reduce the nation’s debt-load as a share of the economy through entitlement reform, spending reductions and greater tax revenues. "
http://www.fixthedebt.org/uploads/files/1-10-13%20CEO%20Membership%20Press%20Release%20FINAL%20%282%29.pdf
Give the people what they want! They don't want a government coin... it's not libertarian, they want "reduced borrowing by the govt from the people"...
that said, the coin has moved the ball forward and is not over yet.
rsp,
Nice roundup at Johnsville News - Champagne Wishes and Platinum Dreams: RIP
Demented analysis of this at "The 'Economist'" aka "The Libertarian Economist":
http://www.economist.com/blogs/freeexchange/2013/01/treasury-rejects-platinum-coin
For the record, put them on the stupid and blind list too..
rsp,
Mike Norman - You said on this blog, "I'm with Ron Paul now". If you mean this, I say to you that this could be one of those magic moments when left and right come together on common ground to challenge the establishment. You and I have talked about how I am part MMT, part Supply Side and part Austrian. Make of that what you will, but as the old saying goes, "politics makes strange bed fellows". This is what I've been blogging today.....
****************************************
The Treasury has ruled out minting a $1Trillion Dollar Platinum Coin to by-pass the debt ceiling and the White House has declined to invoke he 14th amendment, which leaves a third unconventional proposal still on the table.
The $16.4 trillion national debt is partly an illusion, because the Federal Reserve owns $1.65 trillion of it, which it purchased through its QUANTITATIVE EASING (QE) operations.
In recent years the Fed has been earning about $80 billion a year in interest income from these Treasury holdings and earned $90 billion in 2012, $87 billion of which was simply remitted back to the Treasury.
In other words, this is debt that the Government owes itself! Our children and grandchildren aren’t even involved and they will not be saddled with this debt as long as the Fed holds on to it. This raises the question about why this $1.65 Trillion of Treasury debt held by the Fed should even apply to debt ceiling.
After all, what difference is there between the Treasury issuing debt only to have the Fed buy it back, vs. theTreasury not issuing that debt in the first place?
Is there any good reason why the Treasury and Federal Reserve couldn’t simply wave a magic wand over this $1.65 Trillion of debt held by the Fed and in effect cancel it? This would reduce the outstanding debt to about $14.75 Trillion which is well below the current statutory debt ceiling of $16.394 Trillion.
The trillion dollar platinum coin idea may have gone viral recently but the idea of canceling some portion of national debt held by the Fed can gain traction in part because it finds support from both the left and right ends of the political spectrum. Here is post-Keynesian economist Mike Norman of the Modern Monetary Theory (MMT) camp suggesting debt cancellation as a way to defuse the fiscal cliff time bomb.....
http://www.youtube.com/watch?v=-BKiIflAr-4
Meanwhile, at the other end of the political spectrum Ron Paul sees government debt cancelation as a means to bring lasting savings to the federal budget and he was endorsed by Keynesian economist Dean Baker writing in the New Republic in July, 2011. "Ron Paul’s Surprisingly Lucid Solution to the Debt Ceiling Impasse"
http://www.tnr.com/article/politics/91224/ron-paul-debt-ceiling-federal-reserve#
There are also these articles which appeared more recently ( mid-Oct ) in the FT blog and Seeking Alpha....
http://blogs.ft.com/gavyndavies/2012/10/14/will-central-bank...?
http://seekingalpha.com/article/925171-will-central-banks-ca...
The debt cancellation idea and the platinum coin idea are really two sides of the same coin... so to speak. Either alternative makes the debt ceiling dilemma go away temporarily while buying Congress about a year or so of valuable breathing space to formulate sensible pro-growrth economic policy rather than causing a self inflicted wound on the economy and millions of American workers and businesses.
Mr. Bernanke, if you seek transparency and accountability for the Fed…. If you seek prosperity for the American people then come to Congress and tell our law makers that the Treasury debt held by the Fed should not apply to the debt ceiling. Mr. Bernanke TEAR UP THIS DEBT!
@ Ben Johannson,
It could well be true that Obama is just bluffing. I definitely agree that given history, we cannot rule that out.
But we can interpret his actions and his statements in a logical way that is consistent with with his stated policy goals, including his desire to be, as you say "The Bi-partisan, someone history will look upon as the one who brought Washington together to Do The Right Thing."
Sorry Ed, Bernanke cant help you, he is a BIG part of the problem
http://www.washingtontimes.com/news/2010/feb/25/bernanke-delivers-warning-on-us-debt/?page=all
He probably scolded Treasury about the coin and shamed them into not doing it...
rsp,
Is it lack of balls or strategy? I think it could be both. The Dems did put up a good campaign, and they made the GOTP raise taxes on the wealth so they can get things done. But Obama did offer the Grand Betrayal, and caved in at the last debt ceiling showdown. Either way, Obama had better not "negotiate" this time.
Ed,
Especially the shorter term Treasuries. But now they are QEing longer term treasuries. With all the excess reserves in the system now, must we assume they intend to sell them back to the banks when they feel the time is right ala reverse repo.
15 days ago Obama said "I will not negotiate debt ceiling with THIS Congress"
My first tought was THIS 112th Congress is there only till January 3., You will have to negotiate with 113th Congress.
Many overlook what he wanted to say by twisting the meanings and lieing with message while not literaly lieing. Debt ceiling WAS a part of negotiations over fiscal cliff. He looses that part and payroll tax cut extensionin exchange for not giving spending cuts.
Fiscal cliff did end up fairly nicely considering everything. Raised taxes on rich will raise only nominal deficit not raise unemployment while payroll tax will affect unemployment negatively.
I am with Matt's understanding of this pronouncement with low level official. Obama can use coin later on without lieing himself by using low level oficial, just as he lied with Susan Rice who he did not want as next Secretary of State.
I believe that Obama aranged this confrontation with GOP to come at the time of fiscal cliff and debt ceiling together and expose GOP in full light. Using coin would destroy the strenght of his side in confrontation next time.
Obama chose time and environment for confrontation with GOP. Doesn't want to let enemy escapes now, after so much invested effort.
I would say that previous confrontations were loosing due to lack of public awareness then and public attitude for solutions. Public attitudes changed a lot in last 4 years. There is a paradigm shift in public understanding of economy and politics.
If the FED wont take the coin for deposit it doesn't mean you can't work around the FED. Granted you probably couldn't mint up a single coin to do it, but if you've got the dyes for one coin why not a whole lot of large denomination platinum coins - say a billion dollars. You could then deposit the coins into any of the thousands of Treasury TT&L accounts. You then sweep those accounts to the Treasury's FED account. If the FED wont take the coin from the banks, then they'll just source reserves from the money markets like any other interbank clearing process when they need additional reserves. And you could incent the banks by depositing the coin at a discount or by having the depositor be an OCC bank regulator (the carrot approach probably works better).
And if the FED still doesn't want to play, then just write your checks from the TT&L accounts. At this point the FED would risk bringing down the payment system if it didn't play along.
If the FED wont take the coin for deposit it doesn't mean you can't work around the FED. Granted you probably couldn't mint up a single coin to do it, but if you've got the dyes for one coin why not a whole lot of large denomination platinum coins - say a billion dollars. You could then deposit the coins into any of the thousands of Treasury TT&L accounts. You then sweep those accounts to the Treasury's FED account. If the FED wont take the coin from the banks, then they'll just source reserves from the money markets like any other interbank clearing process when they need additional reserves. And you could incent the banks by depositing the coin at a discount or by having the depositor be an OCC bank regulator (the carrot approach probably works better).
And if the FED still doesn't want to play, then just write your checks from the TT&L accounts. At this point the FED would risk bringing down the payment system if it didn't play along.
Given the Fed's actions currently and in the past, their comments, their lack of understanding of their own role, and now this, I don't see any reason for a central bank anymore. At least not one that is run like this.
Remember also, that Geithner gets replaced. So all bets are off in the 113th. This could be the reason for no WH comment, but only the Treasury comment.
Raised taxes on rich
GOP took a huge hit on this one. Taxation is their signature political issue. Dems took no politically significant hits. Big win for O.
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