Former Head of U.S. Mint: beowulf and JKH are 100% correct

Cullen has a real blog where he apparently gets some traffic and interest. Who knew! ;)

Paul Krugman routinely links to him (it’s happened enough to be routine anymore) and now the former head of the U.S. mint has left a comment on Pragmatic Capitalism.

Mr. Deihl validates how both our own beowulf and JKH are 100% correct in their assessment of how the coin would work:

 

I’m the former Mint director and Treasury chief of staff who, with Rep. Mike Castle, wrote the platinum coin law and produced the original coin authorized by the law. Therefore, I’m in a unique position to address some confusion I’ve seen in the media about the $1 trillion platinum coin proposal.

* In minting the $1 trillion platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years. The Secretary’s authority is derived from an Act of Congress (in fact, a GOP Congress) under power expressly granted to Congress in the Constitution (Article 1, Section 8).

* What is unusual about the law (Sec. 5112 of title 31, United States Code) is that it gives the Secretary complete discretion regarding all specifications of the coin, including denominations. [Mike here: beowulf has shown this again and again.]

* Moreover, the accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the treasury’s general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar. [Both JKH and beowulf have demonstrated the accounting here at MR.]

* Once the debt limit is raised, the Fed ships the coin back to the Mint, the accounting treatment is reversed, and the coin is melted. The coin would never be “issued” or circulated and bonds would not be needed to back the coin.

* There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books, and the coin would be melted. [Mike Comments: JKH and his analysis the coin would be "Platinum Coin easing" where the coin is spending without public bond issuance results in accounting which is the same as quantitative easing are validated in this passage.]

* This does not raise the debt limit so it can’t be characterized as circumventing congressional authority over the debt limit. Rather, it delays when the debt limit is reached.

* This preserves congressional authority over the debt limit in a way that reliance on the 14th Amendment would not. It also avoids the protracted court battles the 14th Amendment option would entail and avoids another confrontation with the Roberts Court.

* Any court challenge is likely to be quickly dismissed since (1) authority to mint the coin is firmly rooted in law that itself is grounded in the expressed constitutional powers of Congress, (2) Treasury has routinely exercised this authority since the birth of the republic, and (3) the accounting treatment of the coin is entirely routine.

* Yes, this is an unintended consequence of the platinum coin bill, but how many other pieces of legislation have had unintended consequences? Most, I’d guess.

Philip N. Diehl
35th Director
United States Mint
en.wikipedia.org/wiki/Philip_N._Diehl

The coin is real. It can be done.

(Update: Mr. Diehl has left a comment here at MR saying reiterating his stance on the legality and accounting treatment of the coin.

 

 

 

Comments

  1. Bob Salsa says:

    This is amazing. I sure hope Krugman picks this up (since he reads this blog) and uses his megaphone to inform the world. This could have the Congressional GOP shaking in their boots!

  2. Clonal Antibody says:

    Mike,

    I have also linked to and posted the comment in toto at Joe’ blog at Daily Kos — Have to bring the career Progressives on board!
    Trillion Dollar Coin: Posts on Legality and Constitutionality

  3. I got an email in the middle night from Cullen suggesting I check the comments. This is what I was thinking as I read it…
    http://www.youtube.com/watch?v=Jow5aO8mp3E

  4. Doubtless the Mint chief is referring to the Coin Act of 1792 when he’s citing for 200+ years of Constitutional authority. Funny thing is, that self-same act was also the first statute mandating the death penalty:

    Sec. 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death.

    It dovetails nicely with the Constitution itself:
    No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

    Note that this was placed as a limitation on States, since the existence of a Central US Bank in the first instance was deemed of questionable Constitutionality in the era. There’s a reason that everyone tosses about a “platinum” coin, it’s because it’s a loophole that violates the spirit of the law, one that never intended for the federal government to emit unlimited bills of credit or coin in the first place. The Founders were very cognizant of the hyperinflation of Continental dollars, and placing monetary control in the hands of government. When silver and gold are your coin, any private citizen can own a mint, and this itself is a limitation on central government’s ability to counterfeit money.

    What all this really goes to is not about what makes pragmatic fiscal sense, but a fundamental check and balance against government devaluing the money of individuals. Inflation, in the end, is fundamentally just another tax, one that the first American citizens were very keenly consciously aware, so much that they found the need to hold a revolution against their own central government for theft by parliamentary action.

  5. I keep hearing about this “spirit of the law” business. What matters is the words on the page, if there’s ambiguity in the law, well, its up to the agency to determine what it means (except in criminal law where ambiguity is construed in favor of the defendant).