Mr. President, don’t mint that platinum coin!

January 10, 2013

Much political commentary has, in recent days, revolved around a most unusual question: Should the Treasury Department mint a trillion-dollar platinum coin that can be used to pay off our debts in the event House Republicans refuse to raise the debt ceiling?

The short answer is: No, it shouldn't. The long answer is also: No, it shouldn't.

This is a fight we need to have. (Source: Bloomberg)
This is a fight we need to have. (Source: Bloomberg)

The debt ceiling is now a time bomb beneath the U.S. economy. If the White House can render it harmless by encasing it in an indestructible tomb of platinum, then perhaps our problems are solved. And the arguments in favor of the coin are logically and legally sound. A straightforward reading of the law suggests that, whatever Congress's intent, the Treasury Department is clearly empowered to mint coins of unlimited value. A coin of unlimited value would allow us to pay off our debts. President Obama could even, as Bloomberg View's Josh Barro has suggested, offer to sign a bill eliminating both the debt ceiling and the Treasury Department's ability to mint coins of any value.

And so, as Paul Krugman argues, we are "faced with a choice between two alternatives: one that’s silly but benign" -- the coin -- "the other that’s equally silly but both vile and disastrous" -- the debt ceiling. "The decision should be obvious."

But there's nothing benign about the platinum coin. It is a breakdown in the American system of governance, a symbol that we have become a banana republic. And perhaps we have. But the platinum coin is not the first cousin of cleanly raising the debt ceiling. It is the first cousin of defaulting on our debts. As with true default, it proves to the financial markets that we can no longer be trusted to manage our economic affairs predictably and rationally. It's evidence that American politics has transitioned from dysfunctional to broken and that all manner of once-ludicrous outcomes have muscled their way into the realm of possibility. As with default, it will mean our borrowing costs rise and financial markets gradually lose trust in our system, though perhaps not with the disruptive panic that default would bring.

Sadly, none of that is actually a reasonable argument against the platinum coin. The fact that we wish we were not a banana republic witnessing a full-blown meltdown of our treasured system of governance does not mean we are not, in fact, a banana republic witnessing a full-blown meltdown of our treasured system of governance.

The argument against minting the platinum coin is simply this: It makes it harder to solve the actual problem facing our country. That problem is not the debt ceiling, per se, though it manifests itself most dangerously through the debt ceiling. It's a Republican Party that has grown extreme enough to persuade itself that stratagems like threatening default are reasonable. It's that our two-party political system breaks down when one of the two parties comes unmoored. Minting the coin doesn't so much solve that problem as surrender to it.

The platinum coin is an attempt to delay a reckoning that we unfortunately need to have. It takes a debate that will properly focus on the GOP's reckless threat to force the United States into default and refocuses it on a seemingly absurd power grab by the executive branch. It is of no solace that many of the intuitive arguments against the platinum coin can be calmly rebutted. It's the wrong debate to be having.

Worse, it is a debate that will that will strengthen the worst factions in the Republican Party. There are plenty of Republicans who are privately uncomfortable with the party's shift towards repetitive brinksmanship. Some of them are quite powerful. Recall that in 2011, Senate Minority Leader Mitch McConnell basically tried to trick his party into giving up its power over the debt ceiling. Just last weekend, Newt Gingrich said the debt ceiling is "a dead loser" for the GOP and advised Republicans to find "a totally new strategy." Philip Klein, a columnist at the Washington Examiner, put it clearly: "As a conservative, I fear Republicans overplaying their hand, delaying a debt limit increase so long that financial markets begin to panic. As a result, small government ideology will be associated in the public mind with economic chaos and conservatism will be seen as incompatible with governance."

The fact is that after losing the 2012 election, and with the business community mobilizing against the threat of default, the leadership of the Republican Party is going to have a terrible time holding its members together on the debt ceiling. Even more problematic, from the perspective of conservative hard-liners, is that many of the GOP's leaders are themselves scared of the debt ceiling and looking for a way out. There is a very good chance that this fight can be won and these tactics discredited.

The moment the White House declares itself open to minting the coin, the Republican Party's extremists can breathe a sigh of relief. They may not have been able to hold the line for a strategy that sought unpopular Medicare cuts by threatening a disastrous default. But they can certainly hold the line against what will, among their members, be seen as a wild, unprecedented, inflationary power grab by an overreaching president. Making matters more difficult, it will become impossible for more cautious Republicans to break ranks. It's one thing to argue, as many are already doing, that inducing default risks destroying the Republican Party for a generation. It's another to abet such a blatantly unconstitutional, dangerous move from the executive branch. As Klein writes, "if Obama were to listen to liberals and go the coin route instead, it would be tossing a life preserver to Republicans."

Nor is it entirely clear the platinum coin would end the issue. The working assumption of many of the coin's promoters is that Republicans would eventually give up and the coin could be melted down. The platinum coin, in this telling, removes the Republican Party's leverage and forces them to come to their senses. But as Ross Douthat asks, "is this generally how politics works of late? One party behaves irresponsibly, the other side counters with a wave of irresponsibility of its own (because that’s the only way to make those crazies see reason …), and then the first party recognizes the error of its ways and everyone returns to behaving reasonably? Does that pattern describe the polarized Washington that we’ve come to know and love?"

It is likelier that the platinum coin would drive the Republican Party towards a much more dangerous and enduring standoff. If Republicans never permitted another debt increase, would we just keep minting platinum coins? Would the Federal Reserve abet the strategy and work to hold down inflation, effectively putting itself in the middle of a titanic political fight? Would the market eventually begin to panic because American governance has entered into unknown territory?

There are two ways to truly resolve the debt-ceiling standoff. One is that the Republican Party needs to break, proving to itself and to the country that the adults remain in charge. The other is that America is pushed into default and voters -- and the world -- reckon with what we've become, and what needs to be done about it. Sadly, there's no easy way out. It's heads America wins, tails America loses.

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Neil Irwin | January 10, 2013