As I follow the back-and-forth over the platinum coin option, I've come to appreciate that its most vocal champions — Business Insider's Joe Weisenthal, Bloomberg's Josh Barro, and The Atlantic's Matthew O'Brien — are doing the public (or at least that portion of the public that pays attention to esoteric fiscal policy) a great service.
For the uninitiated, the platinum coin option is a hypertechnical end-run around the federal debt limit statute. Citing a 1996 law governing the minting of collectors' coins, the treasury secretary could theoretically deposit a $1 trillion coin or two at the Federal Reserve and temporarily bypass a vote of Congress to increase the debt ceiling.
There is, you must admit, a diabolical ingenuity to the idea; it's like the fiscal policy wonk's version of the ending of The Firm, in which a John Grisham hero who'd been employed by a corrupt Memphis law firm gift-wrapped a mail-fraud case to the FBI and avoided disbarment in one fell swoop. It's like getting Al Capone on tax evasion. But there is more than mere entertainment value to the platinum coin campaign; there is also pedagogic value.
In their arguments against the platinum coin, opponents misunderstand its purpose in such a way that suggests they don't understand the debt ceiling itself. Rep. Greg Walden, who introduced a bill to explicitly prohibit the platinum coin, said in a statement:
This scheme to mint trillion-dollar platinum coins is absurd and dangerous. My wife and I have owned and operated a small business since 1986. When it came time to pay the bills, we couldn't just mint a coin to create more money out of thin air.
Similarly, an unsigned Washington Examiner editorial dismissively explains it this way: "The Treasury could then deposit these coins at the Federal Reserve and use those funds to pay off our debts." Phrases like this are misleading at best. Coin advocates do not pretend that the federal government can meaningfully retire debt by printing money. As Barro explains:
If the government financed itself this way in general, that would absolutely be inflationary. But the president can hold inflation expectations steady by making absolutely clear that the policy will not lead to a net change in the money supply over the long term. Obama should pledge that once Congress authorizes additional borrowing, he will direct the Treasury to issue bonds to cover the government's coin-backed spending and then to melt the coin. [Bloomberg]
Plainly, the aim of the platinum coin is not to "pay the bills," but ultimately to borrow more money.
That critics think of the coin this way adds to my suspicion that they approach the debt ceiling under the same misimpression. The 1917 debt limit statute transfers the power to borrow money in the public's name — which the Constitution grants to Congress — to the Treasury Department. This power is not a "blank check" to borrow money for the hell of it. Its purpose is to meet financial obligations necessitated by laws previously enacted by Congress. Consider the fiscal cliff deal, which will add nearly $4 trillion to federal deficits over the next decade. Does it make any sense to believe that the same Congress that codified those expenditures should be able to restrict a future treasury secretary from financing them?
I'm not savvy enough to confidently predict that courts would uphold the minting of the platinum coin, or that markets wouldn't greet the maneuver with the same horror they would a default. Yet at the same time, I'm even less persuaded by the reassurances that we can weather a debt-limit crisis without actually defaulting on our debt.
Playing chicken with the debt ceiling is in truth every bit as absurd and dangerous as the platinum coin. And by meeting absurdity with absurdity, danger with danger, the "mint the coin" campaign may help would-be debt-ceiling hostage takers realize the recklessness of their own premises.
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