Obama is a coward and a traitor if he allows this to happen, unchallenged--platinum coin, 14th Amendment (even Clinton said he'd use that) unilateral raise by executive action, whatever.
I understand the politics; to put blame on the other side, however, the public is so stupid that this strategy could backfire. (They might say, "we need to cut. That was the prudent thing." etc.)
Repercussions could range anywhere from modest (default on some minor domestic obligations) to enormous--all out default, like, not pay our "Chinese bankers."
In any case the end game is the same--we go full, full, full, Europe. Greece, in fact. And the cops will be locking people up en masse as demonstrations, protests and violence flares.
15 comments:
Obama will do whatever Wall Street tells him to do. He'll never betray them. So he can't be a traitor. That's his nature and we've known it since he was running as a candidate and collecting eye-watering amounts of dirty money from Wall Street firms.
Bravery doesn't come into it. He's a bought and paid for piece of shit warmonger and fiscal conservative, not a fireman.
" the end game is the same--we go full, full, full, Europe. Greece, in fact."
Maybe that's the whole idea, Mike? Similar to how Robert Mundell invented the Euro to roll back the welfare state in Europe?
R's are currently bankrolled by extremists. The extremists want to crush social programs. And if truth be known, Democrats do, too, they're merely playing "good cop" while R's play "bad cop."
Furthermore, a recession in the run up to the 2016 election would favor the Republicans. From a Republican's point of view, there's no downside to default.
Obama doesn't have to do anything other than instruct the treasury to keep paying for our existing contractual obligations. The administration should communicate with the Fed that it is the president's opinion that it should continue to credit the payee's bank account with reserves. If the Fed pays, it will of course debit the Treasury General Account with as an overdraft, which would result in a negative balance amount. Perhaps the Supreme Court may get involved at this point. I hope not, but if they do, the President would not be the one to take the blame. Somehow I don't think the powers that be are going to opt for a meltdown.
Congress has authorized the spending but not the debt issuance. So follow the law. Spend but don't issue debt. What is congress going to do, impeach the President for following the law? Over drafting their Fed account isn't supposed to happen but neither is a debt crisis? A reasonable supreme court justice would agree that congress intended to spend and they didn't want debt issued. The conflicting laws from congress are the problem not the President.
Ryan,
This is exactly my sentiment.
Ryan, I think the problem is that an overdraft of the treasury general fund amounts to credit extended by the central bank to the government, and is thus part of the government's debt, and would be in itself a violation of the debt ceiling law if the credit results in the government exceeding the debt ceiling.
Agree with Ryan.
Regardless of the operational mechanics, the president would be following the law to direct the Treasury secretary to instruct the head of the central bank to clear the government's obligation on time. The Treasury secretary needn't tell the head of the central bank now to account for it on the cb books.
The president would be pretty stupid if he dithered around long enough to default thinking about how to handle the accounting.
I would go further and say that the president would be acting improperly not to direct the Treasury secretary to instruct the cb head to clear the government's previously incurred obligations on time since these are the kinds of decisions that the executive is supposed to make and the law gives the executive the leeway to do it.
If the president just announced that this what he intended to do to prevent default, that would be the end of the matter after a lot of grousing and politicians looking foolish.
President Trump would probably have no problem with that. President Obama is another matter. (I am not stumping for Trump. Jus' sayin'.)
I should point out that beowulf cited the law on this some time ago, but I don't have a reference to it now.
Good point. Unfortunate they'd call an over-draft "debt", it is of course, though.
Richard, you know what worries me in all this, is that it forces the President to explicitly pick and chose which congressional laws to follow and then let the chips fall. It gives the President almost authoritarian power to resolve the crisis in which ever way he sees fit. It is terrible for the otherwise usually clear constitutional separation of power between branches.
I'm with Mike on this one, tired of the charade with the two-party government in Washington. They see default as a cheap political opportunity, so I'll treat it with equal disrespect as a speculative financial opportunity. Funny thing is half the congressmen and staff probably will be trading it while they are voting. I hear lots of them trade their inside regulatory information all the time. A cesspool, the entire government.
Obama is on his way out during his lame duck, he could probably just let the government break down chaotically if his contributor$ don't scream too loud. There is no political consequence for himself or his administration to what happens in this crisis. That is what makes it dangerous.
This is the logic I was thinking:
The constitution trumps US Code, which trumps the Federal Register and CFR, which trumps other bureaucratic rules.
Paying Debt is required, constitutionally, no question.
Congressional expenditures are constitutional.
Everything else in the debate are USC and CFR violations.
Ryan,
Technically an overdraft is a form of debt but perhaps the restriction of the Fed is limited to the purchase of marketable debt issued by the US Treasury. I am not an expert in the law about this by any means.
Here is a link to a recent Fed publication:
Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks
Here’s an excerpt concerning the expiration o the authorization for the Fed to directly purchase Treasuy debt:
The Act of April 28, 1947, amended the proviso to section 14(b) of the Federal Reserve Act accordingly:
Provided, That, notwithstanding any other provision of this Act,
(1) until July 1, 1950, any bonds, notes, or other obligations which are direct obligations of the United States or which are full guaranteed by the United States as to principal and interest may be bought and sold without regard to maturities either in the open market or directly from or to the United States; but ... the aggregate amount of such obligations acquired directly from the United States which is held at any one time by the twelve Federal Reserve banks shall not exceed $5,000,000,000; and
(2) after June 30, 1950, any bonds, notes, or other obligations which are direct obligations of the United States or which are fully guaranteed by the United States as to principal and interest may be bought and sold without regard to maturities but only in the open market.
The exemption was thereafter renewed from time to time until 1981.
Also, I understand that in 1985 the Treasury actually did get into an overdraft situation. Here is a related link:
Government Ran Overdraft for Day, Treasury Dept. Says - October 25, 1985
1. Congress has appropriated Federal spending for which the Executive is mandated to spend.
2. These appropriations exceed the tax revenue the Government is collecting. This was expected at the time the appropriations were passed. So Congress appropriated deficit spending.
3. Congress has mandated that whenever the Government plans to deficit spend, it must first issue and sell debt instruments in an amount a least equal to the planned deficit spending. In this connection, the Treasury is prohibited from having an overdraft in its TGA at the Federal Reserve Bank.
4. Congress has mandated a debt limit such that the Administration must stop issuing debt when that limit is reached. (The limit was reached in early May). Given the Congressional requirement that deficit spending must be accompanied by debt issuance, the debt limit, in the absence of other countervailing factors puts a stop to deficit spending, until the limit is increased. There is a very important countervailing factor. But it is not recognized or used. So, for the moment, at least, the debt limit has stopped any further deficit spending
5. The 14th Amendment, section 4, requires that the validity of the “debts” (broadly construed) of the United States never be questioned, and since the President has sworn an oath to uphold the Constitution, he is obligated to do all he can to see to it that these “debts” are paid. In fact, he’s obligated to see to it that these debts aren’t even “questioned.” His suggestion that Social Security and other key payments won’t be made on August 3, isn’t living up to his obligations. Of course, he’s not alone in this, since many law makers have been warning about the likelihood of a default for many months now.
6. Congress has provided the authority, in legislation passed in 1996, for the US Mint to create platinum bullion or proof platinum coins with arbitrary fiat face value having no relationship to the value of the platinum used in these coins. The US code also provides for the Treasury periodically sweeping the Mint’s account at the Federal Reserve Bank for profits earned from coin seigniorage. These profits are then booked as miscellaneous receipts (revenue) to the Treasury and go into the TGA, narrowing the revenue gap between spending and tax revenues. Platinum coins with huge face values e.g. $2 Trillion, would close the revenue gap entirely, and technically end deficit spending, while still retaining the gap between tax revenues and spending.
7. If used routinely to close the revenue gap, such coin seigniorage would eventually reduce the national debt to zero, and remove it as an issue in US politics. In addition, the existence of platinum coin seigniorage as an option, removes the tension between the mandated debt ceiling and the 14th Amendment. It is the countervailing factor I mentioned earlier, because it provides a way to spend Congressional appropriations without issuing further debt.
8. The President has sworn to uphold both the Constitution, which prohibits a default, and also the laws of the United States including the mandates just mentioned.
9. These mandates, along with the platinum proof coin seigniorage authority, make using seigniorage, or another option like it that allows the Treasury to create revenue without either taxing or borrowing, the only viable options to: continue spending appropriations without violating the debt limit; fulfill all the other mandates, both legal and constitutional; and still be able to spend the money Congress has appropriated.
10. So, if no action by Congress raising the debt limit is forthcoming, it will be the President’s sworn DUTY AND OBLIGATION to either use platinum coin seigniorage, or some other revenue creating tool legislated by Congress in past years, to make the money necessary to avoid default, since his failure to use an available way of creating revenue for continuing to spend appropriations, which he is mandated to do, would be a violation of his oath of office.
Read more at:
http://neweconomicperspectives.org/2011/07/coin-seigniorage-legal-alternative-and.html
It is Obama's duty. Trump should tell him to do it. Perfect timing.
@Random:
You wrote: "3. Congress has mandated that whenever the Government plans to deficit spend, it must first issue and sell debt instruments in an amount a least equal to the planned deficit spending."
It does not "first issue."
Congress spends FIRST. The money is distributed into vendor accounts via the vendors' bank's reserve account at the Fed.
About two weeks, sometimes a month, later, the US Treasury issues treasury securities in the amount of the legal spending Congress just approved. They don't speculate with "planned deficit spending."
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