Have you heard the one about the trillion-dollar coin?
It’s part joke and part economic strategy. It’s totally crazy. Indeed, the only thing crazier is a Congress that is threatening to nuke the economy next month by failing to pay its bills.
The trillion-dollar coin concept originates from a loophole in Treasury laws. The Treasury is limited in how much money it can coin. The exception is platinum coins. Probably because the coins were contemplated as collector items, not as currency, the Coinage Act gives the Secretary of the Treasury discretion on quantities and denominations. The law specifies that any such coins are legal tender.
The theory, therefore, is that if Congress is so reckless that it again threatens not to raise the debt ceiling for obligations it already incurred, the Treasury can mint a single trillion-dollar platinum coin. It can deposit the coin in its account at the Federal Reserve and pay the obligations — which Congress approved — from the account.
Another response to the GOP’s effort to hold the debt ceiling hostage comes from the 14th Amendment, which states in part, “The validity of the public debt of the United States, authorized by law … shall not be questioned.” Arguably, President Barack Obama can rely on the provision to increase the debt ceiling on his own, because the debt is to pay for expenditures previously approved by Congress.
Under another theory, Congress implicitly authorized the borrowing of money under Article 1, Section 8 of the Constitution when it appropriated money under Article 1, Section 9. The Treasury is legally obligated to pay out the money Congress appropriated, and this argument suggests it can do so without a redundant congressional increase in the debt ceiling.
The Treasury could also issue “scrip” — tokens redeemable at a later date — in lieu of money for obligations such as Social Security payments. If transferable, recipients could sell them for cash until Congress decides to honor its commitments.
Obama is unlikely to take any of these steps, but each point to the insanity of Congress using its ability to crash the economy as leverage to save the economy. It’s like refusing to pay your mortgage payment as part of a plan to get serious about spending.
Or, as comedian Jon Stewart put it, it’s like tying someone to the tracks to force yourself to stop the train.
Some in the GOP are offering false information on the debt ceiling, presumably so they won’t face popular opposition when they try to use it as a weapon in upcoming spending negotiations.
A recent example came from U.S. Sen. Jeff Sessions, R-Mobile.
“I think it should be a firm principle that we should not raise the debt ceiling until we have a plan on how the new borrowed money will be spent,” Sessions said. “If the government wants to borrow money so it can spend more, then the government ought to tell the Congress and the American people how they will spend it.”
This sounds quite sensible. It also completely mischaracterizes the debt ceiling.
A local example may help clarify.
Ongoing renovations of Beltline Road in Decatur were made possible, in part, through federal dollars. Congress voted years ago on a transportation budget that specified how much money would be spent. Some in Congress opposed the budget, but a majority favored it. Relying on that budget, the state selected projects and hired contractors. The contractors, also relying on the budget, began purchasing materials and hiring workers.
At some point, these bills will come due. The Treasury, confronted with certifications that the work is complete and that it was included in the congressional budget resolution, will have an obligation to issue payment. Because the nation is operating at a deficit, it will be unable to pay the amount without borrowing money.
For years, Congress has lacked the discipline to either raise enough revenue to meet expenditures or cut enough expenditures to meet revenue. Consequently, total U.S. indebtedness keeps bumping against the debt ceiling.
So when Sessions said Congress should not raise the debt ceiling “until we have a plan on how the new borrowed money will be spent,” he is being deceptive. Congress knows exactly how the money will be spent, because Congress authorized the expenditures. Refusing to raise the debt ceiling does not change the Treasury’s obligation to make payment for Beltline Road, it just makes it impossible for Treasury to honor that obligation.
If Congress did not want to spend the money to renovate Beltline, it should not have authorized the money used for the renovations. Fierce battles over the transportation budget are appropriate. Battles over whether to pay creditors who relied upon that budget, however, are not.
Americans should applaud sensible efforts by Congress to reduce U.S. debt. Threatening to renege on obligations Congress already has incurred, however, is irresponsible.
It’s also dangerous. The only time Congress has ever used the debt-ceiling vote as a political weapon was in July 2011, when the GOP-controlled House was grasping for leverage. U.S. Rep. Mo Brooks, R-Huntsville, confidently predicted that even if the House refused to raise the debt ceiling, there would be no downgrading of U.S. debt.
“In fact,” Brooks said July 14, 2011, “our credit rating should be improved by not raising the debt ceiling.”
The House finally gave in last year — although Brooks voted against the majority — and raised the debt ceiling. The mere threat, however, led Standard & Poor’s to issue its first-ever downgrade of U.S. debt on Aug. 5, 2011. The rating agency said it lowered its long-term rating because of “prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate. … The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.”
The downgrade came as little surprise, except possibly to Brooks. The United States — through the House of Representatives — had just informed creditors all over the world that it might refuse to pay them.
There is little disagreement in Congress that debt levels — inflated by the recession — need to come down. Instead of tying the full faith and credit of the United States to the railroad track, legislators need to go through the difficult process of compromise. For two centuries, Congress has managed to cut expenses and increase revenue without threatening creditors with default.
Tying creditors to the track — even if they are released at the last second — causes fear. Moody’s already has threatened a downgrade if Congress repeats last year’s debacle. Either because of higher interest rates on our already burdensome debt service or the market instability that results if the Treasury cannot satisfy bonds when they come due, the U.S. economy could crash.
Minting a platinum coin is crazy. It is even crazier, though, for Congress to destroy the economy as a means to balance the budget.
If the choice is between crazy and crazier, Obama should go with crazy.