Can a giant platinum coin save our credit?
If Congress fails to resolve this debt crisis by Aug. 2, one tack President Obama could take is to simply declare the debt ceiling unconstitutional under the 14th Amendment. It’d be politically contentious, it’d set all sorts of dicey executive-power precedents, and the markets might judge it harshly. But plenty of legal types think the White House could get away with it.
But failing that, Obama could always just solve the crisis with a pair of magical platinum coins. Sure, that sounds preposterous, but Yale’s Jack Balkin argues that this is actually a perfectly legal strategy. Here’s the logic: Under law, there’s a limit to how much paper money the United States can circulate at any one time, and there are rules that limit how many gold, silver and copper coins the Treasury can mint. But the Treasury is explicitly allowed to mint however many platinum coins it wants and can assign them whatever value it pleases.
So the Mint makes a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Federal Reserve moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations in the near term without issuing new debt. If the Fed was worried about all that newly created money being pumped into circulation, it could always counteract the inflationary effects by selling off the $2 trillion in securities it owns from quantitative easing (thereby taking an equivalent amount of money back out of the economy). Problem solved. Right?
Well, sort of. The interesting thing about the platinum option, as it turns out, is that it actually seems to be on a firmer legal footing than the 14th Amendment approach. The law very clearly states that the Treasury Secretary can mint these platinum coins. He could even adorn them with the face of House Speaker John Boehner (R-Ohio) if he fancied. The trouble, of course, is the politics. Does Obama stage a press conference where he holds up the two large coins and announces what he’s doing? It’d be hard to see how he could do that with a straight face. (When I tried calling various market observers to get a sense of how Wall Street might react, responses ranged from “I don’t really want to talk about this” to actual laughter.)
There’s also another headache that comes with all of these unorthodox debt-ceiling solutions. Back in March, recall, Congress passed a continuing resolution that essentially keeps the government funded until Sept. 30. Once September rolls around, it’ll be time for yet another fight over appropriations. The White House appears to be hoping that a deal on spending now could help stave off the risk of a government shutdown (or sharp, sudden cuts) in September. But a shutdown seems much more likely if the debt crisis gets resolved with a pair of trillion-dollar Ronald Reagan coins. Just because a gimmicky debt-ceiling dodge is legal, doesn’t mean it’s cost-free.