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| Timothy Geithner at the United States Department of Treasury. (Photo credit: Wikipedia) |
Washington, Jan.10, stock advice .- “It was an amazing predicament. He was, in one sense, the richest man that ever lived—and yet was he worth anything at all? If his secret should transpire there was no telling to what measures the Government might resort in order to prevent a panic, in gold as well as in jewels.” That predicament, of Fitz-Norman Culpepper Washington, in F. Scott Fitzgerald’s “A Diamond as Big as the Ritz,” centered on a single, flawless diamond, which was a cubic mile in size. Perhaps more fantastic still is the idea, gaining momentum in non-fictional circles, that a predicament engulfing Washington, D.C., can be resolved with a single platinum coin—and not even a very big one.
The story goes like this: Sometime around the end of February, the Treasury will have spent all the money it has, and it will hit the statutory limit on the amount that the federal government can borrow—the debt ceiling. The fiscal-cliff negotiations, which were the product of the recent debt-ceiling fight, just made it worse by deferring another constructed crisis involving automatic cuts—sequestration—to about the same juncture. If Congress doesn’t raise the debt ceiling, the government won’t be able to pay its bills, including things like Social Security, soldiers’ pay, and interest on bonds, meaning that the United States of America would go into default and all manner of financial disasters would ensue. The Congressional Republicans, knowing this, plan to use the debt ceiling to force President Obama and the Democrats to agree to things like big cuts in Medicare. Since Obama doesn’t want his Presidency to coincide with a Depression, they think they have all the chips, apart from the one about the public hating them.
And maybe another: the platinum coin. The Federal Reserve is in charge of what we might call normal money, but there is an exception in the statute dealing with coins:
The Secretary [of the Treasury] may mint and issue platinum bullion coins 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.
The plan with this law was that the Treasury could make “real” commemorative coins, like the kind you see sold on television, that are legal tender. But since the denominations and other details are up to the Treasury Secretary, Timothy Geithner (or, soon, Jack Lew), can take a lump of platinum, set to it with an embossing seal and a hammer, and mint a trillion-dollar coin. Or a gazillion-dollar one—but the suggestion on the table is that he stick to a trillion, then deposit it in the Treasury’s account at the Fed, where it would be booked as an asset. With that reckoned against liabilities, we’d be well below the debt ceiling. The Treasury could pay everyone—no default, no Medicare cuts.
Unless someone digs up another obscure law, this is, on its face, legal. (It would take time, and someone with standing to sue, for the Supreme Court to say that it wasn’t.) In a press briefing Wednesday, Jay Carney, the White House press secretary, did not dismiss the idea. Stranger still, reputable economists have been arguing that it wouldn’t hurt the economy at all. They say that a trillion-dollar coin would not mean we’d need wheelbarrows full of cash in checkout lines, even if it kind of sounds that way.
Without getting into the technical depths, their reasons involve the assumption that the government wouldn’t be reckless enough to just turn the coin into a trillion dollars in paper money—or not exactly—and would instead use its existence to borrow what it needed to pay its bills. Also, the Fed could issue bonds to, in effect, draw cash out of circulation. A key phrase is quantitative easing. Incorrespondence with Ezra Klein, a former head of the mint offered a series of steps that the Fed could take to make sure nothing bad happened; several ended with the coin being melted down once Congress came to its senses, which seems like a long time frame. The Economist has some charts showing how it could all be controlled (and an alternate suggestion for marketing fifty-million-dollar coins). Paul Krugman says not to worry; he claims that anyone who tells you otherwise is just an inflation obsessive, and that current interest rates prove he’s right.
Krugman and others also say that, as crazy as this sounds, it’s less crazy than Congress forcing the country into a default by not raising the debt ceiling. Krugman does acknowledge that it may be “undignified”: “Here’s how to think about that: we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he’s holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac—a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit,” he writes. “And the response of the nervous Nellies is, ‘My god, we can’t dress the secretary up as a clown!’ ”
In other words, don’t worry about putting in motion a plot that sounds like a cross between “Diamond as Big as the Ritz” and “Goldfinger,” without the romance of the former or the fun of the latter. (“Diamond” is already the most Bond-ish of Fitzgerald’s stories, with an underground glass prison and a girl whose name sounds like “kiss me,” as well as anti-aircraft guns and a villain wearing riding boots, a fur coat, and “rose-colored pajamas,” flanked by three naked hit-men. Plus, painful racial stereotypes.) And never mind if the image that comes to mind is Geithner, not in a clown suit but sprawled out in a seaside suite, his body covered entirely in platinum paint. John Boehner will still be more absurd.
There is also an argument to be made for simply arguing for a platinum coin. This is akin to Richard Nixon’s madman theory: if the Republicans believe that Barack Obama would really go through with it, they’ll take what they can get and go home. The fantasy here is that, in the middle of the State of the Union, Obama will take a trillion-dollar coin out of his pocket and toss it onto the floor, a flat platinum apple of discord. In the ensuing frenzy, Paul Ryan jumps over several desks, stiff arming cabinet secretaries, Supreme Court Justices, and Marco Rubio, and then falls on the coin and swallows it—only to look up and see Obama twirling a second coin in his hand. Or something like that. The drop-the-mike mastery the platinum coin promises is why, for example, Talking Points Memo has been putting together a list of people whose portrait could be on it. (Ronald Reagan is one, Dr. Evil is another.)
And yet, too much of this depends on the government and the Fed being responsible with the coin. That is not a casual bet. Neither is the idea that the international financial markets will understand and trust what we’re doing and not distance themselves from us or impose costs on the American economy. (Examining the options, one begins to wonder if they should.) Also, how will the spectre of the coin make Republicans more sane when conspiracy theories involving monetary machinations drive a whole faction of the Party? If the trillion-dollar coin actually was minted, it might buy nothing more than a Rand Paul Presidency—with the country nearly ungovernable in the interim.
The coin is clever and intellectually interesting. That does not make it a good idea. The debt ceiling is a bad idea without being clever at all. A saner approach might be to ask how Congress expects to pass laws that mandate spending while keeping taxes low, and still have a debt-ceiling statute that makes doing so impossible. This is where the constitutional version of the platinum coin comes in: the Fourteenth Amendment, which says that “the validity of the public debt of the United States, authorized by law … shall not be questioned.” The case that the President should just faithfully execute the laws that ran up these bills—which is, after all, his job—seems stronger than that for the coin. In the past, Obama has been reluctant to think of simply invoking the Fourteenth and ignoring the debt ceiling. Maybe, with visions of a platinum Geithner, he’ll change his mind. As Fitzgerald wrote, who knows what a government might do to avert a financial panic—or, in the case of the congressional Republicans, to manufacture one?
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