Did the Fed have a legal basis for rejecting the Coin? (updated)

12 USC § 246Powers of Secretary of the Treasury as affected by chapter
Nothing in this chapter contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.

John Carney reported yesterday that it was the Federal Reserve that vetoed the trillion dollar coin. Tsy and WH statements announcing a joint decision apparently were face-saving exercises. Its a fascinating decision, and even if we don’t dive into the unitary executive constitutional issue (Article II vests the executive power in a president of the United States of America, the Fed’s independence is predicated on ignoring this fact), there doesn’t appear to be any legal basis for it.

Riddle me this, how come the Fed can be required to take dollar coins that banks haven’t ordered but cannot be required to take other denomination coins banks haven’t ordered?


$1 Billion That Nobody Wants

NPR June 28, 2011 – Politicians in Washington hardly let a few minutes go by without mentioning how broke the government is. So, it’s a little surprising that they’ve created a stash of more than $1 billion that almost no one wants.
Unused dollar coins have been quietly piling up in Federal Reserve vaults in breathtaking numbers, thanks to a government program that has required their production since 2007.
And even though the neglected mountain of money recently grew past the $1 billion mark, the U.S. Mint will keep making more and more of the coins under a congressional mandate.

They’re referring to a presidential dollar coin statute sponsored by Philip’s old buddy Mike Castle. My point is whatever legal authority Congress had to mint Castle’s “circulating and numismatic”* dollar coins was delegated to the Tsy Secretary’s discretion for platinum coins. So if Tsy can put a billion unwanted $1 dollar coins to the Fed then why can’t Tsy likewise put an unwanted $1 billion platinum coin to the Fed?

Whatever power Congress has to set dollar coin output is delegated to the Secretary to set platinum coin output. Remember, discretion to “mint and issue” platinum isn’t just for denomination and design but quantity as well.
(31 USC 5112(k))
Remember too, Congress also said the Secretary “shall mint and issue coins described in section 5112 of this title in amounts the Secretary decides are necessary to meet the needs of the United States”.
(31 USC 5111(a)(1))
If the Fed thinks the Secretary exercising these powers would be compatible with its own powers, well, all’s right in the forest. And if the Fed thinks it would create a conflict with its own powers…. that’s even better. See statute at the top of this page. The “chapter” it refers to is 12 USC Chapter 3 – Federal Reserve System. There is no authority in the Federal Reserve Act nor anywhere else in the US Code for the Federal Reserve to override a decision by the Secretary of the Treasury to mint and issue coins necessary to meet the needs of the United States.
I think the President of the United States just got bluffed by a bunch of eggheads. I suppose it’ll be a good warmup for caving to Mitch McConnell again. :o)

UPDATE: OK this is hilarious. Fed banks were required to order those $1 coins because of Mike Castle’s Presidential $1 Coin Act which required Fed banks to, “make quantities of each new design [4 a year] available to depository institutions in unmixed quantities during an introductory period. This requirement caused the Reserve Banks to place orders for each new design with the United States Mint, which in turn based production on these orders.” OK, so this congressional mandate is the reason the Fed was required to order and hold $1 billion (actually closer to $1.4B) in $1 coins in excess of demand. However at the end of 2011 Treasury suspended this congressional mandate because the Fed already had a decade’s worth of $1 coins stored in its vaults (no doubt the Fed egged Tsy on in this action). Here’s the funny part, would you like to guess how Tsy justified suspending the mandate to put $1 coins to the Fed? Let’s quote the press release, “Under existing law, the Secretary of the Treasury has the authority to “mint and issue coins . . . in amounts the Secretary decides are necessary to meet the needs of the United States.” My point exactly!
If Castle’s $1 Coin Act congressional mandate can override the Fed’s coin ordering discretion and then the Secretary’s Sect. 5111 authority can override the $1 Coin Act mandate, clearly the Secretary can use his Sect. 5111 “needs of the United States” authority to override the Fed’s coin ordering discretion. Now personally I’m dubious his authority is quite as broad as Tsy thinks it is (Geithner overrided an Act of Congress?!?), but that’s easy for me to say. On the other hand, neither the Fed nor Tsy can argue for a narrow reading of 5111 without admitting they’ve been in violation of the law since 2011 by failing to comply (or enforce) the $1 Coin Act mandate. So we’ll just let sleeping dogs lie and assume the Secretary’s authority IS that broad. :o)

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JKH
3 years 10 months ago
The article says: “The reason why such a suspension did not seem possible was the requirement under the Presidential $1 Coin Act for Federal Reserve Banks to make quantities of each new design available to depository institutions in unmixed quantities during an introductory period. This requirement caused the Reserve Banks to place orders for each new design with the United States Mint, which in turn based production on these orders. With production for circulation now suspended, Federal Reserve Banks will not be able to fulfill their legal requirement to make new designs available during an introductory period.” The Act reads: ‘‘(3) COORDINATION.—The Board of Governors of the Federal Reserve System and the Secretary shall take steps to ensure that an adequate supply of $1 coins is available for commerce and collectors at such places and in such quantities as are appropriate by …” That appears to be more like an act of joint co-operation between Treasury and the Fed, in gauging expected demand. That would suggest that the inventory over-stocking is due to a joint error in forecasting, rather than Treasury being in a position of ordering the Fed to order the coins, so to speak. Meanwhile, the press release says: “Under existing law, the Secretary of the Treasury has the authority to “mint and issue coins . . . in amounts the Secretary decides are necessary to meet the needs of the United States.” Given the substantial, growing inventory of $1 coins, it is clear that the minting of hundreds of millions of additional $1 coins over the next several years is not necessary and is not an effective use of taxpayer dollars.” Does “necessary” mean that “the authority to mint and issue coins” as a supply function includes the authority to dictate the Fed’s effective demand for coins… Read more »
Guest
3 years 10 months ago

JKH, it’s not about the Fed’s ordering supply it thinks or does not think it needs. It’s about the right of the Treasury to coin money, deposit that money in the appropriate account at the Fed, the Mint’s PEF, and have that account credited with the face value of the coin. The Fed is the Treasury’s banker. According to law it is the Fed’s mandated banker. If the Treasury Department cannot compel the acceptance of its coins for credit into its appropriate account at the Fed, then, in effect, that destroys its delegated right from to create money through coining it, in order serve the needs of the nation. So, if that right of Treasury is real one of two tings must be the case. Either the Fed, and the Treasury’s banking agent, can be compelled to accept and credit Treasury legal tender when it’s presented by the Mint, or alternatively the Treasury must be free to establish its own bank, with the ability to create money out of thin. I wonder which alternative the Fed would prefer.

Guest
3 years 10 months ago

beowulf, it seems to me that under the Constitution the president is granted wide authority of execution that presidents have interpreted as broadly as possible.

The check and balance is the power of Congress to impeach if the majority of the House believes that the president has acted improperly, then the Senate has to conduct a trial and get a two-thirds majority in agreement to remove, which is a high bar unless the behavior is egregious. This certainly does not see to rise that that level.

There is no provision in the Constitution subjecting the president to decisions of SCOTUS and for the most part SCOTUS has not involved itself in such disputes. Anyway, who would have standing in the first place?

Looks to me like there are various interpretations by legal scholars and so the president, being a constitutional lawyer himself, is in a postion to make an informed interpretation himself. Unfortunately, the president seems to have decided upon a strict interpretation.

Is that about right as you see it?

Guest
Philip Diehl
3 years 10 months ago

While it’s true that the Constitution does not expressly subject the president to the power of the SCOTUS, it’s implied and firmly established in court precedents dating back to Marbury v Madison (1803). That dye is cast.

Guest
Zero Bound
3 years 10 months ago

Nah! Wall Street prefers bonds not platinum coins. Good for collateral and no sweat money making.

Guest
Art
3 years 10 months ago
Guest
3 years 10 months ago

Hi Carlos, Great job, as usual.

I don’t think he got bluffed. I think he ordered Geithner to go to Bernanke and kill the groundswell for the coin, so he could have cover for his own desire not to be boxed in by the coin. See: http://www.dailykos.com/story/2013/01/14/1178845/-Make-Em-Do-It-I-Still-Choose-Using-High-Value-Platinum-Coin-Seigniorage-To-End-Austerity

Guest
beowulf
3 years 10 months ago

Thanks Joe, so Obama has gone from negotiating against himself to conspiring against himself? That shouldn’t surprise me I guess. :o)

Personally, I think this “The Buck Stops with Congress” argument makes the President sound incredibly weak. People hire their presidents to solve problems, not provide color commentary while other people solve them.

The President needs to throw his cap over the wall (say, “As long as I live in this house, the United States will never default on its obligations”) and then let the Attorney General figure out how to get it back. Its like what Harvey Keitel said about Navy captains….
http://youtu.be/IV79EIZVuHQ

Guest
3 years 10 months ago

Well, you know I agree. I think Obama’s pretending to be weak because he wants the Republicans to do his dirty work for him.

Guest
3 years 10 months ago

Obama has let it be known that he wants to “fix entitlements.” He also knows that whoever makes the first move here gets the blame. The GOP has been saying explicitly for some time that this is the chief issue regarding spending. Obama is saying, then you go first, and we will go from there.

Guest
3 years 10 months ago

That update is priceless, beo.

Guest
3 years 10 months ago

I know. It may work for him! But it also may not. If I were them, I certainly wouldn’t go first. I’d try to tag the Dems with that!

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