Wonkbook: Dodge the debt ceiling with a trillion-dollar coin?

January 8, 2013

Welcome to Wonkbook, Ezra Klein and Evan Soltas's morning policy news primer. To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

Wonkbook's Number of the Day: 40. That's the percentage of obligations the federal government will be forced to default on in February if Congress does not pass an increase in the debt ceiling. That, simply put, is a huge chunk of federal spending -- and it's not even clear the Treasury Department has the ability or the authority to decide which bills get paid and which public services continue. That creates the potential of large, indiscriminate, and immediate cuts to federal spending in addition to the financial chaos which would be unleashed by a U.S. sovereign default.

Wonkblog's Graph of the Day: "The saddest graph you'll see today," the statistics on rape.

Today in Wonkbook: The debt ceiling versus the trillion-dollar coin; who's filling out Obama's Cabinet; how defense spending got so big -- and how it might shrink; and new data out on health care costs.

Top story: Debt ceiling versus trillion-dollar coin

New analysis jumps default date half a month earlier in calendar. "The U.S. government may default on its debt as soon as Feb. 15, a half-month earlier than widely expected, according to a new analysis adding urgency to the debate over how to raise the federal debt ceiling. The analysis by the Bipartisan Policy Center says that the government will be unable to pay all its bills starting sometime between Feb. 15 and March 1." Zachary A. Goldfarb in The Washington Post.

Read: The Bipartisan Policy Center's study is a must.

This is what would happen if we breach the debt ceiling. "Imagine we hit the debt ceiling Feb. 15. The BPC’s analysis suggests that federal spending over the next month will be about $450 billion. Federal revenues will be nearer to $277 billion. That means that the government will have to default on about 40 percent of its obligations.The choices it will face quickly become stark. It can cover interest on the debt, Social Security, Medicare, Medicaid, defense spending, education, food stamps and other low-income transfers, and a handful of other programs, but doing all that will mean defaulting on everything else." Ezra Klein in The Washington Post.

But there's another way Republicans could shut down the federal government. "[A]s it turns out, there’s actually a third leg to the next cliff debate: the expiration of the government’s general operating budget, which is scheduled to happen just a few weeks later, on March 27. That’s another potential leverage point for Republicans, as the failure to pass another so-called 'continuing resolution' would shut down the government." Suzy Khimm in The Washington Post.

Trillion-dollar coin idea, once thought joke, now under serious study. "What if Washington's next debt clash, widely expected to be as bitter as the "fiscal cliff" fight, could be resolved with the minting of a $1 trillion coin? That is the idea being pushed by a handful of policy wonks and columnists, and it has caught the attention of lawmakers even though it is an unlikely solution. Under the proposal, the U.S. Treasury would use an obscure commemorative-coin law to mint at least one platinum coin and deposit it at the Federal Reserve, giving the government breathing space as it bumps up against the $16.4 trillion borrowing limit." Eric Morath in The Wall Street Journal.

Read: The part of federal statutes which allow platinum coins to be minted in any denomination.

@ObsoleteDogma: What's crazier: Thinking Congress will "come together" & start acting like adults ... or that a trillion dollar coin is better than default?

GOP lawmaker to introduce bill to block Treasury from making trillion-dollar coin. "The legislation, which Rep. Greg Walden (R-Ore.) plans to introduce, is in response to a proposal by Rep. Jerrold Nadler (D-N.Y.) for the U.S. Treasury to print a trillion-dollar coin to prevent the debt ceiling from being used as a negotiating tool by lawmakers." Daniel Strauss in The Hill.

Mike Castle, the father of the law permitting the trillion-dollar coin, did not see this coming. "The logic, Castle tells me, was to enable the Treasury to put out collectable platinum coins of a variety of sizes. At the time, collectors had complained that the smallest platinum coins available were too expensive, a problem the bill was supposed to enable the Treasury to correct...When I told Castle — who, following a defeat by tea party activist Christine O’Donnell in the 2010 Republican Senate primary, became a partner in the lobbying division of DLA Piper — about the platinum coin solution for the debt ceiling, he was baffled. 'That was never the intent of anything that I drafted or that anyone who worked with me drafted…It seems to me that whatever’s being proposed here is a stretch beyond anything we were trying to do,' he said, audibly astonished." Dylan Matthews in The Washington Post.  

BARRO: Defending the idea of the trillion-dollar coin. "Like the debt ceiling itself, the platinum coin exercise is an asymmetrical, negative-sum game. Nobody wants to hit the debt ceiling, but it bothers conservatives less because they view increasing government dysfunction as useful for achieving their policy goals. Nobody wants the president to pay the government's bills by printing money, but it bothers conservatives more because they are more afraid of inflation...Minting the platinum coin would be less economically damaging than any of the above options, which is why Obama should announce he will pursue it if the debt ceiling is not raised." Josh Barro in Bloomberg.

@ObsoleteDogma: What's crazier: Thinking Congress will "come together" & start acting like adults ... or that a trillion dollar coin is better than default?

KRUGMAN: Be ready to mint the coin. "Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious." Paul Krugman in The New York Times.

WEIGEL: The next round of hostage negotiations. "Republicans have approached every fiscal crisis, real or imagined, as the opening act of an entitlement-cutting negotiation. That was the reason why they eventually broke on taxes. A fundamental rationale for Republicans’ tax fundamentalism was the belief that higher taxes would always be applied to higher spending...You could look at the last 30 years of Republican tax policy as a long anticipation for the big starve. In previous crises, they simply couldn’t convince voters that the possible threats were big enough to spur entitlement cuts." David Weigel in Slate.

PONNURU: Why a debt-ceiling fight is good for the country. "One common argument goes like this: Since Congress sets spending and tax levels, no good purpose is served by holding a separate vote making it possible for the government to follow Congress’s original instructions. That argument would have more force if the federal budget were the result of a deliberate policy. Instead, more and more of our spending rises on autopilot because of decisions made long ago, and nobody is forced to take responsibility for the gap between revenue and commitments. Bills to raise the debt ceiling are the only occasions when congressmen and the president come close to doing so. They are thus appropriate moments to attack the trends that are driving our rising debt." Ramesh Ponnuru in Bloomberg.

SOLOMON: Just use the 14th Amendment. "The White House continues to throw cold water on the idea, saying it doesn't believe the U.S. Constitution gives it authority to bypass Congress when it comes to issuing debt. The reality is that the White House will be forced to invoke the 14th Amendment if a debt ceiling increase isn't agreed to next month. And it can do this without deploying the nuclear option of issuing new debt absent congressional authorization." Deborah Solomon in Bloomberg.

@jbarro: Platinum coin is authorized by plain meaning of a statute that Congress can repeal. 14A would be a large, irreversible claim of exec power.

Music recommendations interlude: Peter Gabriel, "Solsbury Hill," 1977.

Top op-eds

YGLESIAS: Economics' love affair with shoddy data. "Economists are a smart bunch, and in San Diego over the weekend for the annual meeting of the American Economic Association lots of impressive analytical chops were on display. Sometimes, though, the analysis seems to badly overreach the data...No grand theory is going to be much better than the data it’s based on, and the underlying quality is often distressingly poor." Matthew Yglesias in Slate.

SUNSTEIN: If judges aren't politicians, what are they? "Skeptical journalists treat judges as little more than politicians in black robes...Judges are far from mere politicians; we don’t see anything like the kind of polarization found in Congress. At the same time, judicial predispositions matter, and they help explain why judges are divided on some of the great issues of the day...It turns out that a real difference exists between Republican and Democratic appointees. In the politically contested areas, Republican appointees have been found, over a lengthy recent period, to cast liberal votes about 40 percent of the time, whereas Democratic appointees do so about 52 percent of the time." Cass R. Sunstein in Bloomberg.

LAZEAR: U.S. isn't being hurt by Chinese currency manipulation. "When things are not going well, it is common to seek scapegoats. In this vein, populists of various stripes allege that China manipulates the value of its currency to favor its exports and undercut American workers, particularly in manufacturing. The reality is that the value of China's yuan in terms of dollars is not the major reason why China exports over three times as much to us as we do to them. Its exchange rate is a minor source of weak U.S. job growth." Edward P. Lazear in The Wall Street Journal.

Graphs interlude: Cool data on letter and word count frequency from Google Books.

Hagel, Brennan, and filling the rest of the Cabinet

Brennan added to national-security nominations. "President Obama on Monday nominated former Nebraska senator Chuck Hagel as defense secretary and counterterrorism adviser John O. Brennan as director of the Central Intelligence Agency." Scott Wilson and William Branigin in The Washington Post.

Debate: Would appointing Brennan CIA Director equal an endorsement of drone war?

Energy Department, EPA nominations may be on tap. "Obama's energy team is going to be remade just like his national security and foreign policy team, and many observers expect Energy Secretary Steven Chu to announce his resignation as soon as this week...At the DOE, possible Chu successors include former Colorado Gov. Bill Ritter (D); former Sen. Byron Dorgan (D-N.D.); Center for American Progress founder John Podesta, who was President Clinton’s chief of staff; and Deputy Secretary of Defense Ashton Carter." Ben German in The Hill.

What about the Treasury Secretary? "Jacob Lew, the White House chief of staff and former budget director, is on everyone's short list. In fact, he is the short list." Caroline Baum in Bloomberg.

Or Commerce Secretary? "[A]mong the names floated for the now-vacant post of commerce secretary is Xerox chief Ursula Burns, a black woman." Al Kamen in The Washington Post.

...And what about some women in the Cabinet? "President Obama brought his top Pentagon and Central Intelligence Agency chiefs together Monday with their potential replacements, and some critics noticed one thing that stood out: Each of them was a white man...The pattern is particularly striking for a president who was elected with majority support from women and racial minorities and focused heavily during his reelection campaign on women’s health concerns and equal pay in the workplace." David Nakamura in The Washington Post.

Politico's take on why Obama picked Hagel. "[I]nside the White House, the choice makes sense. It appeals to Obama’s bipartisan spirit — and the optics aren’t bad, either — to have any Republican as Defense secretary when Obama is seeking to end the war in Afghanistan and dramatically reduce the Pentagon’s budget. Hagel brings even more credibility to the task because he’s a decorated Vietnam veteran and would be the first from that war to lead the Pentagon. Hagel also has long-standing relationships with Obama and Vice President Joe Biden dating to their time in the Senate, and he’s a particularly close friend of Biden’s." Reid J. Epstein in Politico.

So much for the Defense Department being above politics. "The nomination of former senator Chuck Hagel to lead the Pentagon has set in motion a highly unusual campaign-style brawl over a Cabinet post long considered above politics. Supporters and opponents are raising money and building political organizations in anticipation of a grueling and contentious Senate confirmation process." Tom Hamburger and Peter Wallsten in The Washington Post.

What they had to say about Hagel: Statements from key senators.

Explainer: What are Hagel's odds of being confirmed? In three charts.

BROOKS: Hagel means we're trading defense and international power for health care and a welfare state. "So far, defense budgets have not been squeezed by the Medicare vice. But that is about to change. Oswald Spengler didn’t get much right, but he was certainly correct when he told European leaders that they could either be global military powers or pay for their welfare states, but they couldn’t do both. Europeans, who are ahead of us in confronting that decision, have chosen welfare over global power. The United States will undergo a similar process." David Brooks in The New York Times.

BEINART: Why Hagel matters. "If media reports are true, Barack Obama will soon nominate Chuck Hagel to be secretary of defense. If so, it may prove the most consequential foreign-policy appointment of his presidency. Because the struggle over Hagel is a struggle over whether Obama can change the terms of foreign-policy debate...What makes Hagel so important, and so threatening to the Republican foreign-policy elite, is that he is one of the few prominent Republican-aligned politicians and commentators who was intellectually changed by Iraq." Peter Beinart in The Daily Beast.

MILBANK: Hagel brings credibility. "For the president, who has too often shied from forceful leadership, the Hagel nomination was a welcome sign that he is willing to pick a fight in his second term. And Hagel is worth fighting for...What he would do is lead the people who fight wars — and for that, the old infantry sergeant is uniquely qualified. When he says that war should be the last resort, he speaks with a moral authority that few of those senators who would judge him can match." Dana Milbank in The Washington Post.

WILKINSON: Hagel as intentional polarizer. "Obama may or may not believe Hagel is the best person for the job. But he certainly is mindful of the challenge he has just laid down. Unless opponents can restrict the debate on Hagel to his views -- real or imagined -- on Israel, they risk litigating the disastrous policies that Hagel rejected and his most vociferous critics embraced...The question is no longer whether Obama can defeat the Republicans; the election proved he could. The question is whether the tables have turned and Obama will use the power of his office to intensify polarization -- with the goal of breaking an increasingly brittle opposition party." Francis Wilkinson in Bloomberg.

Historical interlude: French resistance fighters cut the Eiffel Tower's elevator cables during WWII to prevent Nazi use.

How defense spending got big -- and how it might shrink

Sec. Hagel would have to cut Defense budget almost immediately. "With the war in Iraq over and the conflict in Afghanistan steadily winding down, Obama and Congress have ordered nearly $500 billion in reductions to the defense budget over the next decade. But with the country still confronting record deficits, many leaders at the Pentagon are resigned to the likelihood that further cuts are inevitable, followed by fresh rounds of infighting over money...In September 2011, Hagel told the Financial Times that the Defense Department was 'bloated,' adding: 'The Pentagon needs to be pared down. I don’t think our military has really looked at themselves strategically, critically in a long time.'" Craig Whitlock in The Washington Post.

America's staggering defense budget, in charts. "The United States spends far more than any other country on defense and security. Since 2001, the base defense budget has soared from $287 billion to $530 billion — and that’s before accounting for the primary costs of the Iraq and Afghanistan wars. But now that those wars are ending and austerity is back in vogue, the Pentagon will have to start tightening its belt in 2013 and beyond. If Hagel gets confirmed as secretary of defense, he’ll have to figure out how best to do that." Brad Plumer in The Washington Post.

Hagel, Brennan, and how they add up to a new direction. "President Obama is assembling a national security team designed for an era of downsized but enduring conflict, a team that will be asked to preside over the return of exhausted American troops and wield power through the targeted use of sanctions, Special Operations forces and drone strikes." Greg Miller and Scott Wilson in The Washington Post.

Techy interlude: They are making one terabyte flash drives now.

New data out on health care costs

For the last few years, the growth of health spending has been slow. "The rate of increase in health spending, 3.9 percent in 2011, was the same as in 2009 and 2010 — the lowest annual rates recorded in the 52 years the government has been collecting such data...Federal officials could not say for sure whether the low growth in health spending represented the start of a trend or reflected the continuing effects of the recession, which crimped the economy from December 2007 to June 2009...Health spending grew more than 5 percent each year from 1961 to 2007. It rose at double-digit rates in some years, including every year from 1966 to 1984 and from 1988 to 1990." Robert Pear in The New York Times.

Read: The relevant report, "National Health Spending in 2011."

But is health cost growth really slowing? "Health-care costs grew slower than the rest of the economy in 2011 for the first time in more than a decade. For health policy analysts, that’s huge: When they try to get really aggressive on controlling costs, they usually aim for cost growth that is 1 percent higher than the rest of the economy...So the big question for budget makers and health policy experts is: Do they stay that way? Are the past three years the new normal or an aberration induced by the recession?..Harvard University’s David Cutler argues that three systemic changes, ones that will stretch beyond the recession, are most likely responsible for the slower growth rate...Some argue that the recession is still depressing health spending and that it’s too soon to declare a solution to our health spending problems." Sarah Kliff in The Washington Post.

Explainer: Five facts about Obamacare and health premiums.

Study predicts Obama healthcare law will raise premiums on young adults. "Young adults will see higher health insurance premiums under the Affordable Care Act (ACA) because of a provision that links prices for older and younger patients, according to a new study. Actuaries at management consulting firm Oliver Wyman predicted the law's age rating restrictions could mean a 42 percent hike in premium costs for people aged 21 to 29 when they buy individual coverage." Elise Viebeck in The Hill.

We're spending billions on unnecessary C-sections. "A study out Monday from Truven Health Analytics found that C-sections cost 50 percent more than vaginal births, with private insurers paying an average of $27,866 for a C-section in 2010 compared with $18,329 for a natural delivery. Medicaid paid significantly less for each procedure, though the cost disparity lingered with $13,590 for a C-section and $9,131 for a natural delivery...Truven estimated that U.S. spending on maternity care would drop by more than $5 billion if only 15 percent of pregnant women chose C-sections — the rate recommended by the World Health Organization — compared with the current 33 percent." Elise Viebeck in The Hill.

Extraterrestrial interlude: Star Wars taxidermy.

Et Cetera

How Tide detergent became a drug currencyBen Paynter in New York Magazine.

How to design the perfect welfare systemDylan Matthews in The Washington Post.

Watchdog to set new home-loan rules. Alan Zibel and Nick Timiraos in The Wall Street Journal.

"The Obama administration spent more on immigration enforcement in the most recent fiscal year than on all other federal criminal law enforcement combined." Miriam Jordan in The Wall Street Journal.

Court considers limits on class-action suitsRobert Barnes in The Washington Post.

GAO launches online database of reportsJosh Hicks in The Washington Post.

Got tips, additions, or comments? E-mail me.

Wonkbook is produced with help from Michelle Williams.

SECTION: {section=business, subsection=null}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: !!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Comments
SECTION: {section=business, subsection=null}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: !!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=2, source=washpost.com, allow_photos=false, maxitems=7, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Show Comments
Most Read Business
Next Story
Sarah Kliff | January 7, 2013