Obama Will be Forced to Issue the Coin

Felix Salmon has an excellent post up today about how Obama won’t issue the coin (h/t reader Kris Smith):

 “There’s a reason why the proponents of the platinum-coin approach are generally economists, or at least economically-minded. The idea makes gloriously elegant economic sense, and attempts to shoot it down on economic grounds generally fail miserably. You can try a legal tack instead, but that doesn’t work much better: the coin is as logically robust as it is Constitutionally stupid.

No one in the executive branch has any real desire to mint a trillion-dollar coin — you can be sure of that. But the coin-minting advocates are OK with that: they just want to use the threat of the coin to persuade Congress that it should just go ahead and allow Treasury to pay for all the spending that Congress has, after all, already mandated. As a result, while no one intends to actually mint a coin, any statement to that effect would constitute unilateral disarmament in the war between the executive and the legislature.”

But this thinking runs counter to what the Secretary of the Treasury will be forced to do. Obama doesn’t have any legal standing to avoid using the coin, especially now that he knows about the coin. Here is beowulf on how the Treasury must act:

“…the Secretary has no legal discretion in this matter whatsoever. His path is laid out by Congress like he’s the mechanical rabbit at a dog race. 

  1. Congress tells the Secretary (as supervisor of the IRS) how much to collect in tax receipts and (with somewhat less effort) in miscellaneous receipts.
  2. Congress tells the Secretary as signatory of every single appropriation warrant how much money to transfer to federal agency sub-accounts (called “appropriation symbols” for some obscure reason).
  3. Congress tells the Secretary he MAY borrow on the credit of the United State to fund expenditures but not for one penny more than the debt ceiling.
  4. Congress tells the Secretary he SHALL mint coins such coins as he decides are necessary to meet the needs of the United States.

When Congress orders the Secretary to spend appropriations in excess of the receipts they’ve ordered him to collect, the unavoidable budget deficit must be filled by the combination of the Secretary’s powers to borrow (debt limit-constrained) money and to mint (debt-free) money. If Congress refuses to increase receipts or cut appropriations or extend the debt limit, the Secretary has only one and only one path to comply with all of his legal duties. Maybe I’m naive, but I’m confident the path to salvation will never be ruled unconstitutional by any United States Court. [Bold Mine]

Wow! That’s interesting. The legal path gets even tighter because of John Roberts, and his ruling on Obamacare. In this Justice Roberts lays out if a law has more than one possible meaning, the Court must choose the meaning which follows the Constitution:

Chief Justice Roberts wrote that if there two possible meanings of a law— one path constitutional and the other unconstitutional, the court must pick the meaning that prevents a breach of the Constitution. I’d extend the point to when there’s two possible meanings of a combination of laws (after all, Obamacare itself is actually a combination of two separate Acts of Congress), the Court must choose the path of salvation. To coin a term, we can call this the razor’s edge doctrine.

“The text of a statute can sometimes have more than one possible meaning. To take a familiar example, a law that reads “no vehicles in the park” might, or might not, ban bicycles in the park. And it is well established that if a statute has two possible meanings, one of which violates the Constitution, courts should adopt the meaning that does not do so. Justice Story said that 180 years ago: “No court ought, unless the terms of an act rendered it unavoidable, to give a construction to it which should involve a violation, however unintentional, of the constitution.” Parsons v. Bedford, 3 Pet. 433, 448-449, 7 L.Ed. 732 (1830). Justice Holmes made the same point a century later: “[T]he rule is settled that as between two possible interpretations of a statute, by one of which it would be unconstitutional and by the other valid, our plain duty is to adopt that which will save the Act.” Blodgett v. Holden, 275 U.S. 142, 148, 48 S.Ct. 105, 72 L.Ed. 206 (1927) (concurring opinion).”

Taking these two into account, the path for the Secretary of Treasury is crystal clear – he must mint the coin to fulfill his legal duties under the law. The court must rule these actions constitutional.

So while Felix might not want the coin to be minted, and heck – I have some reservations about the coin myself – it appears we are compelled to issue the coin.

 

About

Expert in business development, product development, and direct marketing. Developed strategic sales plans, product innovations, and business plans for multiple companies. Conceived the patent pending Spot Equivalent Futures (SEF) mechanism, which allows true replication of spot and swap like products in the futures space.

View all posts by
Guest
3 years 4 months ago

Borrowing and minting are not the only options. There is statutory discretion for asset sales as well. So minting must be weighed against legal asset sales. Also, congress does not tell SecTreas how much to collect in tax receipts, only how much of a percentage to skim. The size of the economy dictates how much is collected.

Admin
3 years 4 months ago

Right, the Internal Revenue Code pegs rate and not quantity (like, say, counties do with property taxes) but either way the collection officials don’t have discretion to move the peg.

Guest
wh10
3 years 4 months ago

Interest point about asset sales. But your other point seems semantic. Congress still orders the Secretary to find some way to fund expenditures beyond tax revenues received. I think that’s beo’s point. Correct me if I am wrong.

Guest
Philip Diehl
3 years 4 months ago

Actually, the law does not “compel” the Secretary to mint the platinum coin, as is the case for almost all other coins. It says he “may” mint the coin. Nevertheless, he has the discretion to do so in whatever denomination he chooses without review by Congress, and there is no restriction placed on the use or purpose of the coin.

Guest
Robert Rice
3 years 4 months ago
Philip, (a)The Secretary of the Treasury— (1)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; http://www.law.cornell.edu/uscode/text/31/5111 The Secretary is not required to issue a platinum coin per se, that is if we consider the platinum coin code independent of the relevant legal context noted above. However, the legal context reads in a manner that suggests the Secretary is obligated to mint some kind of coin to meet the needs of the United States. Funding Congressional spending is notably a need. Given the platinum coin code is a subset, if you will, of the Secretary’s legal mandate, and given this coin appears to be the legal coining avenue toward that end (although admittedly, I haven’t much considered alternative coins), it appears the Secretary has no choice but to coin, should the debt limit not be increased. There is one potential problem I see with the argument above, and that is; what did the ratifiers of the code mean by “meet the needs of the United States”? I don’t know whether the ratifiers envisioned Federal Government self-finance springing forth from these coining codes. I’d like to find out. That question though and its answer is secondary. What we should be principally concerned with is whether the drafters/ratifiers of the Constitution (the law with primacy) intended to vest the Federal Government, in the Coining Clause (Article 1, Section 8, Clause 5), with the authority to self-finance. If in fact they envisioned government self-funding, which the trillion dollar coin is but a form, then utilizing a coin (or whatever form of legal tender) is indisputable. This is the crux. If however the evidence should prove to the contrary, the platinum coin proposal could very well lose… Read more »
Guest
Philip Diehl
3 years 4 months ago

You have a good argument re how the context of the law could require the Secretary to mint the coin. If I were back in my old position as chief of staff at Treasury, my advice would be to hang our hat on this argument in order to deflect criticism that we didn’t have to resort to this course.

A question: how is it that seigniorage earned from a quarter is not self-financing of the government but seigniorage from a platinum coin is not?

Guest
Clonal Antibody
3 years 4 months ago

Rather I should say is a quarter self-financing, or the platinum coin. My take is that both are self-financing.

Guest
Clonal Antibody
3 years 4 months ago

Do you mean is when you wrote “is not?”

Guest
Philip Diehl
3 years 4 months ago

Yes, it’s certainly convoluted.

I’m responding to Robert Rice’s statement:

” There is one potential problem I see with the argument above, and that is; what did the ratifiers of the code mean by “meet the needs of the United States”? I don’t know whether the ratifiers envisioned Federal Government self-finance springing forth from these coining codes. I’d like to find out.”

My question is; whatever the ratifiers intended, wasn’t this settled the first time seigniorage was booked by the treasury and every time it was booked over the next 200 years? If seigniorage from a quarter is considered self-financing, it seems self-evident that seigniorage from a platinum coin would, too. Maybe I’m missing something in Robert’s argument.

Another point: seigniorage has been used for more than 2000 years to finance governments. Jefferson, the designer of the American coinage system, was a student of coinage matters. It’s inconceivable that he was ignorant of this history of seigniorage. I think the self-financing role of coinage was baked in from the beginning. Besides, Jefferson hated debt, taxes and tariffs. He probably saw the self-financing aspects of coinage as a feature not a bug.

Guest
Clonal Antibody
3 years 4 months ago

Thanks. That is what I thought you meant to say. If the quarter, or dollar coin is self financing, then so is the trillion dollar coin. This further feeds into bypassing the limit on the Treasury to issue US Notes, as no limits were placed on the amount of coinage that can be issued by the Treasury. This came from Lincoln’s time.

Admin
3 years 4 months ago

In reality, it doesn’t matter if the law intended for the US govt to be able to self finance. What has developed over the course of the last 150 years is a money system dominated by private banking and designed entirely around private banking. To create a self funding govt is to begin tearing down the institution of private banking.

You might be able to make a legal argument that that’s what the constitution meant, but I guarantee you one thing – you sure as hell won’t beat the lawyers who the banks spent a trillion dollars on to defend their industry. We’ve got a private money system built by banks and for banks. Get used to it. Regulate it. That’s about the best we’ll see in our lifetimes.

No matter what the coin proves from a legal basis doesn’t really matter because it won’t be a permanent measure. Not until the institution of private banking starts to crumble around us. Don’t hold your breath for that….

Guest
Fed Up
3 years 4 months ago

“What has developed over the course of the last 150 years is a money system dominated by private banking and designed entirely around private banking. ”

And, “We’ve got a private money system built by banks and for banks. Get used to it. Regulate it. That’s about the best we’ll see in our lifetimes.”

What if the credo that all new medium of exchange/medium of account has to come from the banking/hedge fund model is the problem?

What someone needs to do is refute the economic assumptions behind that credo.

Guest
Greg
3 years 4 months ago

Well there was a significant 30-40 year period mid 30-40s to mid 70s where banking was very different, and our country was very prosperous, at least by many definitions of prosperous. The reason the banks behaved differently is because the government made them, and it was largely for public purpose reasons (avoiding bank instability). Government (rightly) blamed banking for many of the problems of the late 20s early 30s.

Most people in Congress today (all of them actually) are where they are largely because of the investments made during that time in public goods. They have since been spun off into numerous private enterprises that are making many people rich and employing millions.

For those people to now call for reductions in public investments when their own welfare is largely a result of previous public investments should lead to embarrassing op eds pointing out their duplicity, instead they get billions in support from think tanks and private enterprise as they try to deny to others that which they prospered from themselves.

Guest
Fed Up
3 years 4 months ago

Greg said: “Well there was a significant 30-40 year period mid 30-40s to mid 70s where banking was very different, and our country was very prosperous, at least by many definitions of prosperous. The reason the banks behaved differently is because the government made them, and it was largely for public purpose reasons (avoiding bank instability). Government (rightly) blamed banking for many of the problems of the late 20s early 30s.”

IMO, WWII eliminated a lot of the excess capacity and excess labor, especially outside of the USA. This allowed the USA to net export (trade surplus) until around 1970 (the world went back to being supply constrained instead of being demand constrained).

Guest
Greg
3 years 4 months ago
“‘IMO, WWII eliminated a lot of the excess capacity and excess labor, especially outside of the USA. This allowed the USA to net export (trade surplus) until around 1970 (the world went back to being supply constrained instead of being demand constrained).” I think you are correct here, except maybe about the part about being supply constrained.(And I dont like the term excess labor as if those people werent necessary) I’m never sure what someone is getting at when they say we were or are supply constrained. What exactly did we become in short supply of, besides imaginative politicians and CEOs who understand the value of having strong middle class customers, even if it costs them high taxes.? Energy, as we currently choose to create it, has supply issues but market prices hardly reflect that. We still manage to have cheap alternatives like natural gas, apparently in abundant supply. Clean water is an issue, but this is not really considered, I dont think, when most economists talk about our supply constrained economy. Mostly they are talking about, it seems to me, things like educated work forces and new capital investment goods. Things which are not truly in short supply, but simply not being paid for……. by choice. Being a net exporter explains our status as reserve currency issuer but m not sure it has a lot to do with our change in banking behavior over the last 30 years. My comment was mostly addressed at the idea that we are stuck with a bank run monetary system and we should just live with it. We had a very different bank run system during the years I described and we had NO major bank crises and a strong middle class. Moving in that direction some would be better in my view… Read more »
Guest
Fed Up
3 years 4 months ago

Here is an example of the kind of garbage I see.

http://research.stlouisfed.org/pageone-economics/uploads/newsletter/2013/PageOneClassroomEdition0113_Opportunity_Cost_Scarcity.pdf

“Conclusion
An understanding of scarcity and opportunity cost is crucial to making good economic decisions. Remember that scarcity describes the condition in which our wants exceed the resources necessary to satisfy those wants. Scarcity requires us to make choices and choosing involves an opportunity cost—the value of the item given up when a choice is made. So, making wise (and sometimes difficult) choices requires considering the opportunity costs.”

What about rich entities that don’t seem to face “scarcity” and “opportunity costs”?

Guest
Fed Up
3 years 4 months ago

“I’m never sure what someone is getting at when they say we were or are supply constrained.”

Supply constrained means when supply increases, the extra supply gets bought so that things like positive productivity growth increase output. Demand constrained means when supply increases, the extra supply does not get bought so that things like positive productivity growth decrease employment.

“I dont think, when most economists talk about our supply constrained economy. Mostly they are talking about, it seems to me, things like educated work forces and new capital investment goods.”

Educated work forces and new capital investment goods are about the real aggregate supply (AS) side. From what I have seen, economists/macroeconomists tend to skip the real aggregate demand (AD) side. They believe real AD is unlimited (the definition of economics). I don’t believe real AD is unlimited.

Guest
Robert Rice
3 years 4 months ago

I understand your cynicism and skepticism. However, the banks do not own the SCOTUS. I don’t even imagine they could influence the Court, except through competent attorneys arguing their case. Should the evidence be strong for self-finance and should the Administration and the Treasury Secretary pursue this path, in the event self-finance via the coin or some alternate faces a legal challenge, they too will have very good attorneys arguing their position. The Administration is not going to pursue a trillion dollar coin without a belief the evidence for their position is genuinely conclusive. They cannot afford to lose this in front of the SCOTUS; it could cause immediate problems with funding Congressional commitments, and it would be far too embarrassing, politically. In which case, should it end up before the SCOTUS, I believe success is more likely than you speculate. If the Administration assumes the risk, it suggests the Administration has conviction in their legal position. With strong evidence, they could easily be successful before the Court.

Guest
Clonal Antibody
3 years 4 months ago

See my reply below

Admin
3 years 4 months ago

“Actually, the law does not “compel” the Secretary to mint the platinum coin, as is the case for almost all other coins. It says he “may” mint the coin.”

Just as a fantasy football coach should never second guess Bill Parcells on draft picks , I’ll concede Philip’s point on this or any other question of Mint law and procedures. :o)
Also that part about “the Court must choose the path of salvation”– I don’t typically go around sounding like Deepak Chopra, that was a callback to a line I quoted the other day, “The path to salvation is narrow and as difficult to walk as a razor’s edge.”

Guest
wh10
3 years 4 months ago

So what’s the deal with this?

“Former U.S. Mint Director: The $1 Trillion Platinum Coin Ain’t Worth a Plugged Nickel”

http://www.cnbc.com/id/100364183

Guest
3 years 4 months ago

@ WH10

That post is by Ed Moy, 38th director not Philip Diehl, who was the 35th. A comparison of the respective posts reveals who has made the better case, and I don’t believe it is Mr. Moy.

Guest
Philip Diehl
3 years 4 months ago

The way the debt ceiling will be raised is the way it was raised in 2011 and the way the fiscal cliff was “resolved”: an agreement was struck with McConnell, passed with bipartisan support in the Senate, and sent to the House where it passed with a minority of GOP support.

The goal is to persuade the Senate GOP they have a losing hand and it’s time to deal again so the crazies in the House don’t take them down in 2014. The Senate GOP meeds to be thinking: Why set it up so the WH can wait until the last minute after all the bluster and threats. Then they come to the rescue, dealing another embarrassment to Boehner, et al. The coin (or some other device) as a credible threat is central to the strategy. Otherwise, it’s just a game of chicken.

And then there’s the long game. We’re trying to lay a new pathway in the political neural network by establishing and repeating a pattern. Doing so may be the best hope of muddling through until the grip of the House radicals is broken. The same path might be followed for immigration reform and other issues over the next two years. (This is not the bipartisan pipe dream of the first Obama administration. It is realpolitik.)

Bear in mind the Senate GOP faces vulnerabilities their House counterparts do not. And the 2012 elections gave GOP Senators up in 2014 and 2016 a wake up call.

Guest
3 years 4 months ago

I think that’s right; and very much like the NN analogy. I understand that idea very well!

Guest
Philip Diehl
3 years 4 months ago

Uhh, no. My position is that it’s worth a trillion dollars and probably more in terms of its secondary value in saving the US economy the costs of a default.

Guest
3 years 4 months ago

I think ideally, the coin has to be circulating but this can be managed if someone insists. As per current law I am not sure so can be done even without circulation.

One of the persons in the CNBC video in the site says if the government gives you a $1T coin, would you accept it … its value is nothing. It is untrue. If I get the coin I wll be worth $1T. I will buy out CNBC!

Let us say banks do not accept it. I will take a loan of billions of dollars and when they ask me to pay, I will use the coin and demand change. If they sue me, the court’s decision is in my favour.

Guest
Clonal Antibody
3 years 4 months ago

People forget, that a bullion coin, even though it can be sold at the price of metal, is still legal tender – if suppose, the price of platinum were to drop to 1c a pound, it would still be worth its face value. Regular coins are not allowed to be sold for their metal content. It is illegal to do so. That is the only difference between bullion coins and regular coins. It is illegal to melt either bullion coins, or regular coins except by the mint.

Guest
Clonal Antibody
3 years 4 months ago

See what I wrote at Mike Norman’s on this

1 6 7 8
wpDiscuz