Monetary Realism

Understanding The Modern Monetary System…

The Razor’s Edge, John Carney and The Trillion Dollar Coin

“The path to salvation is narrow and as difficult to walk as a razor’s edge.”
Katha-Upanishad, 500 BC

John Carney, whose work ethic is admirable, has three (!!!) new CNBC columns out today about the trillion dollar coin and the debt ceiling (uno, dos, tres). John asserts that the trillion dollar coin would be unconstitutional and that even if the debt ceiling were eliminated, Congress could just as easily screw things up by refusing to authorize debt service payments. Leaving aside the folly of anticipating the next stupid thing Congress does while the current stupid thing has yet to be dealt with, debt service is actually one of the few unlimited, permanent appropriations in the US Code (31 USC 1305), its been on the books since 1874 so it would be a hard slog for Congress to remove that permanent appropriation (Wall Street lobbyists would not be pleased) AND then get it past a presidential veto. So in reality, to paraphrase Arthur Miller, interest must be paid!

But I digress. John’s main argument is that using the platinum coin statute to sidestep the debt ceiling is unconstitutional because its too vast a delegation of power by Congress to the Secretary of the Treasury.

“The statute authorizing the Treasury Secretary to mint platinum coins is very different. Here’s what the relevant section says:

    The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities,denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

There’s no intelligible principle here at all. Nothing to guide the Secretary of the Treasury about how to exercise this authority, no goal at which his discretionary decisions are aimed. This is just too broad to fit into our constitutional framework.”

I disagree, because, Congress has, in fact, left the Secretary walking on a razor’s edge with many burdens, and little discretion. His path is almost too narrow to fit into our constitutional framework, almost. But first, we must look to other sections of Title 31 to find the Secretary’s duties and powers.
The Secretary of the Treasury shall—
(2) carry out services related to finances that the Secretary is required to perform; *
(3) issue warrants for money drawn on the Treasury consistent with appropriations;
(4) mint coins, engrave and print currency and security documents [i.e. Treasury bonds], and refine and assay bullion, and may strike medals;**
(6) collect receipts…
31 USC 321
*“The Secretary of the Treasury may borrow on the credit of the United States Government amounts necessary for expenditures authorized by law…” [subject to debt ceiling] 331 USC 3101 & 3104,
**“The Secretary of the Treasury… 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)

Now here’s where John is wrong, 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.


View all posts by

55 Responses

  1. Tom Hickey says

    Oops. Should be “unsterilized as rb.” But you knew that already. Mosler’s point.

  2. JKH says

    the south side of supply and demand is probably a good turn anyway at which to exit the race track when trying to understand monetary economics


  3. Philip Diehl says

    This is very helpful. Fortunately, I haven’t had to deal with the second argument, so far, since I’ve been dealing with people whose mastery of economic theory just reaches the south side of supply and demand. So I make the easier-to-grasp spending argument and move on before eyes glaze over.

  4. Joe Firestone (LetsGetitDone) says

    as I understand it, Stephanie Kelton, of UMKC economics, the editor of the New Economic Perspectives Blog will be there too. I think you’ll find her charming and brilliant!

  5. JKH says

    Great stuff.

    I think Hayes is an excellent reporter/interviewer on this subject.