The Constitutional Argument Against the Platinum Coin Stunt

They came for the 4th Amendment, but it was necessary for the war on drugs. They came for the 5th Amendment, but due process had to be sacrificed for the war on terror. They came for the 6th Amendment, but confrontation had to succumb to classification and secrecy. They came for the War Powers Act because Libya was “required to be protected”. Now they are coming for one of the most fundamental of Constitutional checks and balances, the Congressional prerogative of the purse.

Who are “they”? They are, of course, the ubiquitous Article II Executive Branch. And they have a never ending thirst for usurping power, all in the name of efficacy. It is always necessary, it is always an emergency, there is always a reason, for them to take the power. They are the Daddy Branch, and it is always best to trust them. So they say.

Back when “they” were the Bush/Cheney regime, liberals, progressives, and Democrats in general, had a seriously dim view of accumulation and usurpation of power in a unitary Executive. When Dick Cheney, David Addington and John Yoo contorted existing law, gave it application never intended, and manufactured legal and governmental gimmickry to accomplish stunningly naked Executive power grabs, those on the left, especially the blogosphere, screamed bloody murder. Well, that is precisely what is afoot here with the Mint the Coin! push.

Where is that principled set of voices on the left now? Things are different when it is your guy in office I guess. Because the active liberal/progressive left I see out there is currently screaming to “Mint the Coin!” doesn’t seem to realize they are calling for the same type of sham rule of law that John Yoo engaged in.. This is most curious, because “Minting the Coin!” contemplates a naked power grab by the Executive Branch of historic proportions. It is a wholesale taking of the Congressional purse prerogative under the Constitution. But, hey, its an “emergency”. Of course. It always is when the Article II Executive Branch comes to feed in the name of efficacy.

What is the value of Separation of Powers, and constriction of Constitutionally assigned powers to the branch to which they were assigned, and what is the value in insuring that an imperial Executive Branch does not usurp too many powers? Let James Madison, in Federalist No. 47 explain:

No political truth is certainly of greater intrinsic value, or is stamped with the authority of more enlightened patrons of liberty, than that on which the objection is founded. The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, selfappointed, or elective, may justly be pronounced the very definition of tyranny. Were the federal Constitution, therefore, really chargeable with the accumulation of power, or with a mixture of powers, having a dangerous tendency to such an accumulation, no further arguments would be necessary to inspire a universal reprobation of the system. I persuade myself, however, that it will be made apparent to every one, that the charge cannot be supported, and that the maxim on which it relies has been totally misconceived and misapplied. In order to form correct ideas on this important subject, it will be proper to investigate the sense in which the preservation of liberty requires that the three great departments of power should be separate and distinct.
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The constitution of Massachusetts has observed a sufficient though less pointed caution, in expressing this fundamental article of liberty. It declares “that the legislative department shall never exercise the executive and judicial powers, or either of them; the executive shall never exercise the legislative and judicial powers, or either of them; the judicial shall never exercise the legislative and executive powers, or either of them. ” This declaration corresponds precisely with the doctrine of Montesquieu, as it has been explained, and is not in a single point violated by the plan of the convention. It goes no farther than to prohibit any one of the entire departments from exercising the powers of another department (Publius, Federalist 47).

What is the import of the Congressional “Power of the Purse”? As James Madison said in Federalist No. 58:

This power over the purse may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate represen- tatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure (Publius, Federalist 58).

The mantra is always “oh it will be reined in later after the emergency is over” and/or “the courts will sort it out later and fix it”. Not so in this case, the courts will not be settling this one; it is almost certainly the exact type of political issue historically and consistently refused to be entertained by federal courts under the Political Question Doctrine. Even if a federal court, presumably the District Court for the District of Columbia, would entertain the matter, do you really think the DC Circuit Court of Appeals, much less the Supreme Court led by Roberts and Scalia, would uphold this tomfoolery?

Also, as Hamilton noted in Federalist No. 78:

The legislature not only commands the purse, but prescribes the rules by which the duties and rights of every citizen are to be regulated. The judiciary, on the contrary, has no influence over either the sword or the purse; no direction either of the strength or of the wealth of the society; and can take no active resolution whatever.

The only other avenue of corrective legal relief is the impeachment process pursuant to Article I, Sections 2-3. It is highly doubtful the House would issue a charge of impeachment (although, don’t kid yourself, this is exactly the type of situation the impeachment power was designed for); but even if the House did, the Senate would never convict. So, the upshot is that if Obama is insane enough to pull the coin stunt, it will wind up as a historic and destructive gutting of power from the Article I Congress by the usurping Article II Executive Branch. And it will stand because there was no truly available forum to litigate the merits on their own right. Is that a good precedent to set in the name of efficacy? No.

The temporary thrill that those on the left would receive from the stunt would leave indelible lasting harm on our root Constitutional government. And, yes, that still, even in this day and age, matters. But, what about Harvard Professor Lawrence Tribe having given his blessing to the “legality” of “Minting the Coin!”? There is, sadly for the coin aficionados, a difference between the legality of the physical “minting” of the trillion dollar platinum coin, and the legality and constitutionality of the plan to use it as a direct effective substitute for Congressionally authorized debt. Yes, it really is that simple.

Yesterday, I broached this subject with Professor Erwin Chemerinsky, and here is his response:

The Constitution says that Congress has the power to borrow money. The President cannot do this by unilaterally raising the debt ceiling or issuing a trillion dollar coin. The debt ceiling is set by statute and I think that there is not a plausible argument that it is unconstitutional.

I wish the President could do these things. I think increasing the debt ceiling here is essential and should not be an issue. But I do not think it can be done without Congress.

Yes. And that is the thing; even assuming arguendo the physical minting of the trillion dollar platinum coin is “legal” as suggested in this post by Markos (and for reasons left for another day, I maintain that is not nearly as clear as claimed), the contemplated use of the coin is not constitutional, and it is not appropriate. Therein lies the problem so many seem to suddenly, now that it is our man in the White House, conveniently ignore. Again, though, it is always convenient and exigent when the power hungry, usurping, unitary Executive theory comes calling, isn’t it?

So, there is the Constitutional case, or at least a healthy part of it. But what of the more pragmatic considerations? Do they militate in favor of President Obama being so brash as to blow up the founding checks and balances, in the form of the Purse prerogative being designated to the Congress? No, they don’t.

It is not every day I agree this much with something Ezra Klein said, but credit where due, I do today:

But there’s nothing benign about the platinum coin. It is a breakdown in the American system of governance, a symbol that we have become a banana republic. And perhaps we have. But the platinum coin is not the first cousin of cleanly raising the debt ceiling. It is the first cousin of defaulting on our debts. As with true default, it proves to the financial markets that we can no longer be trusted to manage our economic affairs predictably and rationally. It’s evidence that American politics has transitioned from dysfunctional to broken and that all manner of once-ludicrous outcomes have muscled their way into the realm of possibility. As with default, it will mean our borrowing costs rise and financial markets gradually lose trust in our system, though perhaps not with the disruptive panic that default would bring.
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The argument against minting the platinum coin is simply this: It makes it harder to solve the actual problem facing our country. That problem is not the debt ceiling, per se, though it manifests itself most dangerously through the debt ceiling. It’s a Republican Party that has grown extreme enough to persuade itself that stratagems like threatening default are reasonable. It’s that our two-party political system breaks down when one of the two parties comes unmoored. Minting the coin doesn’t so much solve that problem as surrender to it.

While Mr. Klein does not address the Constitutional considerations and related arguments against the coin, and perhaps takes too easily some of the arguments for “legality”, his depiction of the political and practical wasteland that would result from Minting the Coin! are spot on. And it is, as with the Constitutional considerations, not a very pretty picture painted.

Back in July of 2011, the last time the debt ceiling crisis reared its ugly head, the call was to “Use the 14th” and have the president simply issue more debt without the consent of Congress. I wrote then why “Using the 14th” was not a viable option. It is still not a viable option now. We also learned after that 2011 iteration of the debt ceiling crisis was resolved, that the White House had received guidance from the Office of Legal Counsel in the form of an OLC memo. Considering the strength of the Executive Branch’s statements that it could not circumvent the Congress‘ control of the debt, it is almost certainly the case that the OLC guidance was that any such action was unconstitutional.

The premise, however, behind “Mint the Coin!” is no more constitutional that that of “Use the 14th”. In fact they both, at root, rely on the same premise, namely the language in the first sentence of Section 4 of the 14th Amendment:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

But that sentence cannot be taken in isolation from the remainder of the Constitution, especially the primacy of the Article I Purse Power. No matter how much the gimmick crowd may wish it to be, it is not an ultimatum on the President to blow up the Constitutional system of checks and balances our government is based on. If one needed any further reminder of this fact, it is contained in Section 5 of the 14th Amendment, which states:

The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.

So, not only does the 14th Amendment not provide the rationale for a gimmick solution to the debt ceiling crisis, if anything, it reinforces that it is Congress who controls the issue. Exactly as Professor Chemerinsky opined above.

I too join Professor Chemerinsky in wishing there was an easy path for President Obama to do these things and win the day. Such, however, is not how our Constitution is designed, nor does it so allow.

Bmaz is a rather large saguaro cactus in the Southwestern Sonoran desert. A lover of the Constitution, law, family, sports, food and spirits. As you might imagine, a bit prickly occasionally. Bmaz has attended all three state universities in Arizona, with both undergraduate and graduate degrees from Arizona State University, and with significant post-graduate work (in physics and organic chemistry, go figure) at both the University of Colorado in Boulder and the University of Arizona. Married, with both a lovely child and a giant Sasquatch dog. Bmaz has been a participant on the internet since the early 2000’s, including active participation in the precursor to Emptywheel, The Next Hurrah. Formally joined the Emptywheel blog as an original contributing member at its founding in 2007. Bmaz grew up around politics, education, sports and, most significantly, cars; notably around Formula One racing and Concours de Elegance automobile restoration and showing. Currently lives in the Cactus Patch with his lovely wife and beast of a dog, and practices both criminal and civil trial law.
130 replies
  1. sihlkee says:

    bmaz, this is mostly bullshit.

    “here is, sadly for the coin aficionados, a difference between the legality of the physical “minting” of the trillion dollar platinum coin, and the legality and constitutionality of the plan to use it as a direct effective substitute for Congressionally authorized debt. Yes, it really is that simple.”

    It is pretty simple, but you don’t seem to grasp the concepts. This wouldn’t be a usurption of power. Congress would still be the only branch with the power to initiate spending (pulling the purse strings). Filling the purse with the seigniorage from platinum coins doesn’t mean that the executive is grabbing that power. It would only be undercutting the fiction that accumulating debt is necessary for Congress to borrow money. The executive branch itself wouldn’t be issuing any new borrowing or raising the debt ceiling unilaterally, so nothing Professor Chemerinsky said holds water.

    You should read this article by Joe Firestone, and try to understand why yours is completely wrong on this:

    http://www.correntewire.com/filling_the_public_purse_and_getting_the_public_spending_we_need

    I don’t like executive power grabs either. I’m definitely no fan of Obama for things like indefinite detention, assassination, and felating Wall Street. I voted Green.

    This just isn’t even close to the same thing, and in fact, you’ll be in the same camp as Obama here, since he’d never, in a million years, challenge the way we create debt-based money in the US. The banks wouldn’t appreciate it.

  2. cynthiakouril says:

    Yet it is Congress, specifically the GOP controlled House of Representatives that is deliberately setting the table for this. Do you think they don’t realize that they are throwing away their own power?

    Congress can protect their own power by stopping the hostage taking.

    You act like this is an Executive Branch driven thing, which was the case with Addignton and Yoo. It’s not, this manufactured “crisis” is entirely of Congress’s own making and they can avert at any time.

    It is not analogous to the neo con’s plotting to expand Executive power and trying to create scenarios that they could exploit.

    I think POTUS would be delighted if this opportunity to expand Article 1 power (if indeed it is an expansion, a fact I do not concede) were taken away by Congress acting responsibly.

    You are acting as if POTUS sought this, he didn’t, unlike Shrub. This problem is entirely of Congress’s making and if Congress gets bitten in butt for it, well, karma baby.

    They did not have to set themselves up to throw away their own power, and they don’t have drive off the cliff all Thelma and Louise.

  3. bmaz says:

    It does not matter that Congress is creating the issue. that is their prerogative, even if misguided. And, yes, were Obama to actually pull the chicanery all of the Mint the Coin! cluckers are calling for, it would indeed be the Article II Executive Branch that would be “driving the thing”. Just because a separate branch of government, controlled on an issue by the opposite party, is being obstinate and stupid is NOT grounds to damage the Constitution.

    The President’s first sworn duty is to defend the Constitution, no pull gimmicks of convenience out of his ass when the going gets tough.

  4. selise says:

    p.s.

    “Where is that principled set of voices on the left now? Things are different when it is your guy in office I guess.”

    NOT MY GUY! (i didn’t even vote for him — either time! first time primarily in protest of fisa and telco immunity).

  5. jayackroyd (@jayackroyd) says:

    First, bmaz hail to you for sticking with principles. I agree that issuing the coin would make an already too powerful Executive more powerful. But we are (putatively) at a constitutional crisis. The House refusing to fund its appropriations is, sorry, would be, a non-trivial issue. The Executive needs to pay the bills the Congress has agreed to pay. How do you propose he do that? If, and I do mean if, the debt ceiling isn’t raised?

  6. bmaz says:

    @selise: Respectfully, that is bunk. Congress’ power of the purse is NOT just appropriating, but also in control of the debt. If the coin is being used to circumvent and supersede Congress’ role in controlling the debt, then usurping said power is EXACTLY what is occurring.

    But it is great to see you again!

  7. bmaz says:

    @jayackroyd (@jayackroyd): There are no good options. But, I think that if that date is reached without a compromise agreement with the Republicans, the President is forced to go beyond and start not making certain payments and then tar the Republicans for the harm. I cannot be solved by a gimmick though.

  8. Starbuck says:

    @bmaz:

    So, what else is new? It’s SOP for any intractable problem these days, conveniently blamed on the Constitution as you pointed out at paragraph 1.

    It’s a long slippery slope with it’s roots on the bank of England ca 1680’s, to this point. Privatization of the monetary system began in earnest then and continues to this day. If we want to fix this, we need to fix it all the way to the Federal Reserve.

    IMO, anyway.

  9. selise says:

    @bmaz:

    “Just because a separate branch of government, controlled on an issue by the opposite party, is being obstinate and stupid is NOT grounds to damage the Constitution.”

    totally agree. but i don’t see any damage to the constitution unless walden’s bill becomes law.

  10. bmaz says:

    @sihlkee: Thanks. Frankly I think Firestone’s beloved gimmick is total bullshit. Guess we are at an impasse.

    Oh, and what he argues does not do squat to counter what I have argued.

  11. JerryN says:

    @bmaz: But, if it comes to "not making certain payments", where is the Executive branch’s authority to determine which payments not to make? The Executive is obliged to make all of them. I think there’s an argument to be made that absent an increase in the debt ceiling, the President will be forced to violate at least one constitutional mandate, whether it is failure to disburse authorized funds, defaulting on debt payments, or issuing unauthorized debt. At this point, the discussion turns on which violation causes the least harm.

  12. jayackroyd (@jayackroyd) says:

    @bmaz: I’m putting so much of this in the subjunctive because I don’t think the House will actually default. And I think the Coin publicity is really useful. It gives the Executive an alternative that the Congress should, institutionally, object to. It also is serving a pedagogical role in helping people better understand the nature of fiat currency. There’s much involved with fiat currency that is counter intuitive, and the Coin helps people get a grasp on that.

  13. Gav says:

    Given that …

    The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

    … is congress allowed to block the raising of the debt ceiling? I get that they don’t want to, and that they are trying to negotiate and get something in return for raising the ceiling, but if the negotiations fail, are they actually allowed to not raise it. Doesn’t the 14 amendment say that they have to raise it; they have no choice. Their choice was made when they decided to spend the money month/years ago.

  14. sihlkee says:

    @bmaz

    “Oh, and what he argues does not do squat to counter what I have argued.”

    It does though.

    Congress passed the law that gives the executive the authority to mint high value platinum coins and pocket the seigniorage. From Firestone’s piece:

    “Or, the normal situation, until now, is that it won’t contain enough credits to cover debt repayment and Congressional appropriations, and will be credited throughout the year in amounts corresponding to tax payments, bond sales, sales of other assets and profits from coin seigniorage.”

    Tax payments, bond sales, sales of other assets, and profits from coin seigniorage are the distinct ways in which Congress has approved of paying for appropriated spending. A high value platinum coin would just dwarf the others.

    Frankly, I find your constitutional objection in light of the relevant legislation to be bullshit, so yes, I guess we’re at an impasse.

  15. selise says:

    “Congress’ power of the purse is NOT just appropriating, but also in control of the debt.”

    a $1T coin would respect congresses control of the federal public debt (treasury securities).

  16. selise says:

    @jayackroyd (@jayackroyd):

    “…the Coin publicity is really useful. It gives the Executive an alternative that the Congress should, institutionally, object to. It also is serving a pedagogical role in helping people better understand the nature of fiat currency. There’s much involved with fiat currency that is counter intuitive, and the Coin helps people get a grasp on that.”

    exactly!

  17. Brindle says:

    One of bmaz’s more shallow and bordering on incoherent posts—“screaming to MintTheCoin!”. I have not heard anyone screaming, show a link please.

    –“temporary thrill”…”stunt”—“The temporary thrill that those on the left would receive from the stunt”….
    You are using very emotional language where simple knowledgeable facts would give your views more merit.

    I do like many of your previous posts, btw.

  18. selise says:

    @bmaz:

    issuing treasury securities (federal public debt) is not the only mechanism of funding government spending. the precedent of revenue via seigniorage is well established as legislated by congress and executed via the treasury.

    do you disagree on this point? if not, do you object on constitutional grounds to seigniorage revenue as currently used?

    (p.s. nice to see you too!)

  19. Peterr says:

    To me, the strongest argument is not the 14th Amendment, but Article II, section 3: “. . .[The President] shall take Care that the Laws be faithfully executed . . .”

    Exercising their power of the purse, Congress passed laws directing the President to spend X amount of money on A, B, and about a million Cs. That’s what the fiscal gentle slope nonsense was about, and that’s what the continuing resolution battle will be about. That’s how the power of the purse is used: “spend X (not Y) on A (not on P, Q, or R).”

    The debt ceiling, on the other hand, makes a mockery of these appropriations laws, if it is allowed to trump them. If Congress doesn’t want the President to borrow more money, they have a simple solution available: don’t appropriate more spending.

    In about a month, Obama will not be able to “faithfully execute” the laws of the United States, because Congress has put two laws in direct conflict with each other. Not in the simple “we’re changing the speed limit from 55 to 70” manner, where the new law obviously changes the old one, but in a less direct but no less effective manner.

    You can call the $1T coin a stunt, but it is no less a stunt than what Treasury is involved in right now. They are shuffling money from one restricted fund to another, borrowing from accounts with money to fill accounts without money. Are they circumventing the power of the purse? If there is no intent to replace the money, yes; if this is a cash flow operation, no.

    At the end of the day, minting the Coin is about cash flow, not about appropriations, and not about restricting the power of the purse. Congress authorized the President to spend money, and minting the coin is an unorthodox BUT LEGAL manner in which the President might be able to continue to faithfully execute the laws Congress passed.

    If we crash into this barrier, the President will be forced to break one law or another: either he will refuse to execute the spending laws or refuse to honor the debt ceiling.

  20. TarheelDem says:

    Congress exercised its power of the purse to not raise taxes to cover the spending it appropriated. Congress exercised its power of the purse to set a debt limit that it knew would be exceeded by the deficits it had created. Congress used its power of the purse to limit coin seignorage and the issuance of currency. Congress used its power of the purse to finance government through the Federal Reserve. And a Republican Congress used its power of the purse to authorize coin seignorage on platinum coins and uniquely gave the Secretary of the Treasury the ability to determine the denomination.

    When all of these conflict and the only out is an unorthodox striking of a platinum coin, how exactly is that an executive siezure of Congressional power of the purse?

    Especially considering that the action is to pay of debt that has already be incurred in order to allow non-default when the government has to pay out from Congressionally mandated entitlements and Congressionally mandated military costs.

    And does not allow the President to spend beyond what Congress has already authorized.

    The fact that the President has this legal power does not mean that he will use it. It is a wild card that means that the House of Representatives does not have him cornered by refusing to raise the debt limit.

    You would prefer to respond to the House hostage-taking by shutting down parts of the government?

  21. TheraP says:

    Mental illness is the problem. Not Constitutional exegesis. IMVHO.

    When you’ve got a crazy person in the house (or crazies in the House), the rest of the family goes nuts trying to cope with the problem. This is where we are as a nation now.

    On the right: Ongoing passive aggressive behavior devolving into nuttiness. The staging of tantrums. And “backers” egging on the tantrums. Endorsing the craziness.

    Logic is out the window. Sanity is out the window. This literally shifts reality-testing.

    It is very, very hard – as we can see with our own eyes – to negotiate a crazy situation when large groups of people are unable any longer to “see” that the values and tactics they endorse (and live by) are wacko.

    Society depends upon reality-testing. It mostly assumes that the insane are lone individuals and that we can spot them by their bizarre behavior. Folie a deux is where you have two crazies supporting a shared insanity. It’s very hard to change the view of either partner, so long as the shared insanity is like glue holding the relationship together. Same thing with cults.

    I think we’re dealing with cult behavior here. And it’s reducing society to a terrible shambles.

    But good luck with selling logic, bmaz! You’re correct in doing so. But the crazies want to run the asylum. And unfortunately they have moneyed backers and their propaganda machine is designed to destroy reality-testing.

    So, crazy as the platinum coin idea may be, think of it like a “fire-break” – sowing some craziness to try and keep the true craziness at bay.

    Sadly, the ship of sanity sailed long ago. But hang in there nonetheless, bmaz! And thanks for the sanity! It’s a tiny counter-weight, but a necessary one.

  22. JTMinIA says:

    Maybe I look at things too simply, but I never understood the argument that the oft-quoted section of the 14th A means that we have to pay our creditors on time. If I default on a loan, do people start saying that the debt I owe is invalid? No. The debt is just as valid as it was when I was making my payments on time.

    I see that sentence as saying that the gov’t can’t simply declare that it doesn’t really owe people the money that it owes them. It does not obligate the gov’t to make payments on time, etc, etc.

    Or did “validity” mean something different 200+ years ago? That wouldn’t surprise me, given how often my students (and colleagues, I’m sorry to say) misuse the technical form of the word in the context of experimental design and analysis.

  23. jo6pac says:

    Thanks bmz but the wh really needs a crisis so they can gut all those bad entitlements programs that we old and retired get for free. That was hard to write without gagging.

  24. bmaz says:

    @selise: Yes, I do take issue with that because “seignorage” in the normal sense involves money supply authorized by Congress and backed by the government. There is no inherent value of the Coin other than the approximately $1,500 or so of platinum that would comprise its weight. Even the Coin adherents like Krugman admit that sooner or later it has to be replaced by properly authorized debt devices. The reason is because, without that, it is hollow and manufactured. So, no, that is not like the normal situation you reference.

  25. Saltinwound says:

    There is no mention of the Federal Reserve in the Constitution. Serious question, since we seem to be paying a lot of deference to Congress today: was the entire edifice of the Federal Reserve Costitutional?

  26. Saltinwound says:

    I mean, the Fed guarantees trillions of dollars in debt. On what basis exactly? Why is Congress not involved? How is printing a trillion dollar coin worse than guaranteeing trillions in debt?

  27. bmaz says:

    @TarheelDem: Sadly, if it gets to that, yes I think you would have to do that. Not saying it is pleasant to contemplate, but sometimes governance is quite untidy.

  28. bmaz says:

    @JTMinIA: No, I think that is right. In fact, the history of the 14th reflects that Section 4 was indeed crafted to insure that debt devices given to Union soldiers and others during the Civil War were honored once it was over and that no such debt instruments issued by the Confederacy were honored. So, I think that very much supports what you said.

  29. Peterr says:

    @bmaz: You wouldn’t be shutting down parts of the government; you’d be throwing the entire world economy into an uncontrolled tailspin.

    And no, I’m not being metaphorical.

    Right now, the US treasury bills are the most trusted investment vehicles in the world. The ratings agencies are full of crap to say otherwise. Money around the world is flooding into the US treasury, even when the interest rates on the bonds are damn close to zero. It floods in, because investors (individual, corporate, and sovereign) see the US debt instruments as the safest place to park their money.

    If we crash into this barrier and refuse to honor those debts, all that trust disappears. It’s gone.

    The Crash of 2008 was messy, with Bear Stearns, Lehman, and all the rest suddenly refusing to trust one another. We got out of that in large part because trusted financial agencies — the Fed and the Treasury — stepped in and re-instilled trust. If you think that was messy, though, ramp up the messiness exponentially and that’s what we’ll have if we default on our debts.

    That’s Pandora’s Box, and there’s no one who can step in, restore the trust, and close it again.

  30. Peterr says:

    @bmaz: Then why did you bring it up with the “There is no inherent value of the Coin other than the approximately $1,500 or so of platinum that would comprise its weight.” line?

  31. selise says:

    @bmaz:

    ah, that helps me understand where you are coming from. thanks!

    “There is no inherent value of the Coin other than the approximately $1,500 or so of platinum that would comprise its weight.”

    my position is that this statement is false. it is true only for bullion coins — not for other coins including a proof platinum $1T coin (although gold bugs would like to see that to change).

    for example, a quarter’s value is not based on the current market value of it’s component metals. the face value (25 cents) gives it value as an instrument with which we pay our government taxes (fines, etc) obligations.

    ““seignorage” in the normal sense involves money supply authorized by Congress and backed by the government.”

    backed by the government? how do you mean?

  32. KWinIA says:

    The “debt limit” is a vestige of the gold standard. We are no longer on the gold standard. Refusing to raise it is acting like we are still on the gold standard.

  33. TarheelDem says:

    @bmaz: My reading is that Obama would begin shutting down the government before he would go the platinum coin route. But having the platinum coin as a legal option strenghtens his negotiating position to avoid both.

    My understanding is that he seeks a clean debt limit increase from the House.

    That would avoid both possibilities.

  34. selise says:

    @bmaz:

    if you mean this bit:

    “Exactly how would the U.S. Mint be paid in order for the $1 trillion coin to become official legal tender? If the Federal Reserve accepts the trillion dollar coin from the U.S. Mint, they would incur a $1 trillion liability to the U.S. Mint. To offset the liability to the U.S. Mint, the U.S. Treasury would have sell $1 trillion in bonds which can’t legally be done due to the limits placed on its borrowing capacity by the debt ceiling limit. The idea of a $1 trillion platinum coin becomes a fatally flawed solution that solves nothing.”

    this statement is false as demonstrated by current seignorage practice (for example, see my link above @3)

    to offset the liability to the u.s. mint, the fed would have a $1 T asset. the treasury doesn’t need to sell securities to offset the liability.

  35. selise says:

    @TarheelDem:

    my reading is that obama wants to be “forced” to undermine ss and/or medicare and medicaid. the $1T coin idea shows that obama (along with crazy house Rs) are engaging in pure political theater in order to create a false crisis (shock doctrine).

  36. skint says:

    @bmaz you never really bothered to answer peterr’s #21, which really gets to the heart of the problem with your basic argument: come mid-February or so, SOMETHING unconstitutional is going to happen one way or the other. As it happens, I disagree with your analysis of the coin option as being unconstitutional, but even if you think so, why your preference for the unconstitutional option that throws the world economy into a tailspin over the one that would not?

    I would be interested in hearing your response to peterr’s point; without some compelling answer to that quandary, it’s hard to take your defense of “constitutional” options very seriously.

    Thanks.

  37. sihlkee says:

    @bmaz:

    Ignore me all you want, bmaz, but you’re wrong. Still.

    “Even the Coin adherents like Krugman admit that sooner or later it has to be replaced by properly authorized debt devices.”

    Krugman is wrong, too… because one of those properly authorized debt devices is Platinum Coin Seigniorage. There’s no need, legally or economically, to swap the value of the coin for bonds or taxes. The excess seigniorage is swept into the Treasury as reserves rather than debt instruments, which is within the letter of both the platinum coin minting law and the coin seigniorage law. Both laws were passed by Congress. This is a legal, legitimate way to fund appropriated deficit spending.

    And minting that coin is actually a little less gimmicky than putting imaginary debt restraints on sovereign fiat money creation.

  38. bmaz says:

    @selise: Really? Then why in the world is even Krugman saying that eventually the coin has to be liberated by authorized debt??

    The reason is crystal clear, and all the “seignorage” baloney in the world cannot escape it: The coin is being used in lieu of properly authorized debt. That is why. It is a bloody gimmick. If what you are arguing was correct, what Krugman states would never have to occur. Hell, we could just forever run the country on a never ending series of Platinum Coins. But, of course, this is absurd.

  39. Peterr says:

    @bmaz: That site reads like Glenn Beck’s favorite “OMG! Buy gold!!” websites.

    Other posts on the site include:

    “THE ONGOING COLLAPSE IN THE PURCHASING POWER OF THE DOLLAR IS IRREVERSIBLE – TEN STEPS TO PROTECT YOURSELF” [Note: ALL CAPS in the original. High on the list of those ten steps: “Phase out of paper assets and into something real. Gold, silver, diamonds, farm land, rental property, and buildings come to mind.”]

    “Gold Demand In Asia Remains Insatiable”

    “Gold Will Benefit From The Coming Currency Turmoil”

    “American Silver Eagle Bullion Coin Sales For 2012 Tops 33 Million Ounces – Mint Runs Out Of Coins”

    “Gold Has Outperformed Housing By 600% Since 2001”

    I think you get the idea. Given that most of the posts there — including the one you linked to — are completely without attribution, it reads like the site of an Invisible Bond Vigilante crossed with a Gold Bug.

    You’ll excuse me if I find it less than persuasive.

  40. bmaz says:

    @TarheelDem: Yes, if the theory is to be used, it depends on emergency. That was also the case with the “Use the 14th” option contemplated in 2011. I don’t believe Barack Obama will ever consider using the coin, but if he were to, it would almost certainly be after technical default. Constitutionally, I think it would have to be.

  41. selise says:

    @bmaz: yes really! (could you quote krugman’s actual wording – if he used the words “has to” then he is wrong. he does get a little confused by his “liquidity trap” model).

    “The coin is being used in lieu of properly authorized debt.”

    as are all sources of revenue (including seignorage). it is CURRENT practice and law.

  42. bmaz says:

    @Peterr: Fair enough. I simply said it described the normal process for how coins are treated and utilized by the government, and I do not think it wrong on that. Look all the way through 31 USC 5112, go investigate how coins and the god almighty “seignorage” are used historically and by design. Is there ANY evidence this use is backed by intent? No, there is not. Is there ANY evidence Congress agreed to abdicate it’s prerogative? Not a whiff.

    There is no way to say that using the Coin as intended does anything other than just that.

  43. TheraP says:

    The coin is a symbol. A symbol, I’d say, of the determination to prevent a tantrum by republicans from disrupting financial markets, a way to prevent word salads from undermining consensual agreements regarding already authorized expenditures. It’s “something” akin to a handshake. It’s a symbol of trust.

    Mint the coin. Wave it around. It’s a symbol, like the flag. It’s something to rally around. As a symbol, I find it very attractive. It changes the conversation. And that provides some breathing room. Could already be soothing and calming the markets.

  44. selise says:

    @bmaz:

    “go investigate how coins and the god almighty “seignorage” are used historically and by design. Is there ANY evidence this use is backed by intent?”

    yes. there are. i’ve read way too many congressional hearing transcripts, gao and crs reports… but it occasionally comes in handy. however, it was a year or two ago and i’ll have to dig up the references and find it among the hundreds of papers i’ve have filed. please give me some time to find the references for you (will try this weekend)

  45. selise says:

    @TheraP:

    for me it is a symbol of how our monetary system actually works (and can work).

    we are no long on a gold standard. we have a floating exchange rate. we do not have substantial debt denominated in a foreign currency.

    and yet we are trapped in obsolete thinking patterns. how do we break free? i hope this symbol can help.

  46. bmaz says:

    @selise: Well, you find me the Congressional record where “seignorage” is authorized as a substitute for Congressionally authorized debt, and I will eat both of our hats. But you won’t because that does not exist.

  47. Peterr says:

    @bmaz: “I simply said it described the normal process for how coins are treated and utilized by the government, and I do not think it wrong on that.”

    Given the lack of links in the argument section of that piece, the lack of any designation of authorship, and the garbage-filled posts that surrounds the piece on the site, I think you are assuming facts not in evidence.

    Whoever wrote it talks like a debt-phobic coin collector, not someone who understands economics and accounting. And certainly not someone who understands how money — not coins and bills, but the overall money supply — is created.

  48. TheraP says:

    @selise states:

    “for me it is a symbol of how our monetary system actually works (and can work).”

    Exactly! And broader than that, it presumes a social contract, underlying all of government and economic policy.

  49. selise says:

    @bmaz: i didn’t claim it was in the congressional record (because i don’t remember that for sure — it probably is, but as i wrote, the research i did was at least a year ago and i don’t want to overstate my case).

    there are, however, multiple references in committee hearings, gao and crs reports. will you eat your hat if i provide some of those references? they will address your challenge of “go investigate how coins and the god almighty “seignorage” are used historically and by design. Is there ANY evidence this use is backed by intent?”

    in any event, i will be on the look out for congressional record references.

  50. bmaz says:

    @selise: So, you affirmatively assert that there is evidence Congress intended it be allowed to substitute for authorized debt? I will await that.

  51. selise says:

    @bmaz: i do. looks like one of us will be eating a hat (not literally i hope!). p.s. it is a joy to argue ideas with a principled friend who asks for evidence and will evaluate it when provided.

  52. TheraP says:

    @selise correctly zeros in on the problem here:

    “we are trapped in obsolete thinking patterns. how do we break free?”

    That’s the point here. The coin (symbol) forces a conversation. It gets us out of the “box” that the republicans are trying to place us in. And the box that a poorly educated citizenry has been effectively sealed into (in many areas… climate change, you name it).

    The key to trying to bring about change is first to move away from the “playing field” where you’re boxed in. The coin does that! And even if it’s never minted, the conversation going on – here and elsewhere – is interjecting a change agent into society. It’s shaking up the fixed ideas. It’s forcing questions. It offers an opportunity for education to happen. Because you’ve changed the game!

    The symbol offers that. I like it!

  53. bmaz says:

    @TarheelDem: It is not Constitutional either way in my opinion. But, according to the Coin’s proponents, it is a valid exercise of Presidential power if and when Congress’ actions (really inaction I guess) cause the nation to be in a default posture. Even under this theory, which for the reasons aforestated I do not subscribe to, but even under this theory there would have to be default before such an emergency claim of power could be exercised.

  54. cynthiakouril says:

    @JTMinIA: “I see that sentence as saying that the gov’t can’t simply declare that it doesn’t really owe people the money that it owes them. It does not obligate the gov’t to make payments on time, etc, etc.”

    In that case, it would be impossible for gov’t to reduce SS, since people pre paid into that and it is now a debt that is owed to them. And yes, insurance payments are considered repayment of a debt.

  55. masaccio says:

    I’ll have an opposing constitutional argument, as well as a statutory analysis later in the day. In short, there are competing Constitutional issues in this debacle, and somehow they have to be reconciled.

  56. Saltinwound says:

    If we are concerned with the Congressional record and congressional intent, was the intent of Congress in creating the Fed to secretly backstop trillions of dollars in private debt? Why does Congressional intent only matter where the coin is concerned?

  57. Bay State Librul says:

    Robert Reich on the tools in the box

    “Anyone who thinks congressional Republicans will roll over on the debt ceiling or gun control or other pending hot-button issues hasn’t been paying attention.

    But the President can use certain tools that come with his office – responsibilities enshrined in the Constitution and in his capacity as the nation’s chief law-enforcer — to achieve some of his objectives.

    On the debt ceiling, for example, he might pay the nation’s creditors regardless of any vote on the debt ceiling – based on the the Fourteenth Amendment’s explicit directive (in Section 4) that “the validity of the public debt of the United States … shall not be questioned.”

    Or, rather than issue more debt, the President might use a loophole in a law (31 USC, Section 5112) allowing the Treasury to issue commemorative coins – minting a $1 trillion coin and then depositing it with the Fed.

    Both gambits would almost certainly end up in the Supreme Court, but not before they’ve been used to pay the nation’s bills. (It’s doubtful any federal court, including the Supremes, would enjoin a President from protecting the full faith and credit of the United States).”

  58. Tom Maguire says:

    @selise: I can’t confirm the notion that the sale by the Mint to the Fed won’t work. And I strongly suspect that it would.

    However, it *might* be that the current convention for the flow of funds and product is that the Treasury buys coins from the Mint and then resells them to the Fed. That is trivial for small amount of coins but not practical to a $1 trillion coin. (the Fed can’t lend the Treasury the money to buy it and the Treasury doesn’t have the money itself).

    If the transaction could cut out the middleman it would work fine. But maybe some obscure law requires that middleman.

    As I said, I can’t confimr that, and it seems like a longshot. But it is a puzzle…

  59. bmaz says:

    @Bay State Librul: Same tired old hollow mush. And if Reich thinks it will “almost certainly end up in the Supreme Court” – at least on the merits, it only goes to show he doesn’t have even a passing acquaintance with the political question problem.

  60. bmaz says:

    @Tom Maguire: For a coin to truly have the face value, it must be a circulating coin, no? The problem is that the only way THIS coin gets to be circulating is by going through the Fed process. But that is not part of the Mint the Coin! plan, they contemplate direct deposit into the Treasury and PRESTO! the debt ceiling is obviated.

  61. orionATL says:

    i know nothing about this issue,

    but i am pleased and smiling, bmaz, at how fiercely you are holding your own under this deluge of criticism.

    this is a fun discussion with excellent traffic.

    now i’m off to discover what “coin seigneurage” is -sounds like something out of the middle ages, e.g., “droit de seigneur”.

  62. Bay State Librul says:

    But Bmaz, if MItch McConnell thinks it is wacky, I’m for
    Anything that pisses that dick-head off.
    If we can shove the coin up his ass, it’s a win-win

  63. masaccio says:

    @bmaz: That’s the way all coins and currency go into circulation. I’ll spare you the links. It may be or may not be important, but I think the usual practice is for the Fed to order the currency and the coins, and the currency requests seem to originate from the district fed banks.

  64. bmaz says:

    @selise: I thought that guy was a quack in 2011, and I still do today. He, frankly, doesn’t do squat to address the Constitutional implications I am concerned about. I will stick with my assessment that even if, for the sake of argument, the minting of the coins is “legal”, it is an inappropriate and unconstitutional violation of separation of powers to exercise it for the purpose stated here. End of story.

  65. selise says:

    @bmaz: the beowulf link was in response to your comment @69 (“For a coin to truly have the face value, it must be a circulating coin, no? The problem is that the only way THIS coin gets to be circulating is by going through the Fed process. But that is not part of the Mint the Coin! plan, they contemplate direct deposit into the Treasury and PRESTO! the debt ceiling is obviated.”) which was about legal process, not constitutional issues.

    tomorrow (i hope!) my promised “hat eating” comment will address the issue re “how coins and the god almighty “seignorage” are used historically and by design. Is there ANY evidence this use is backed by intent?”

  66. bmaz says:

    @selise: Well, I have already looked at the legislative record behind the key section and I can tell you, there is not the slightest hint of intent to so use the provision to sidestep or supersede the debt ceiling.

  67. JohnLopresti says:

    I agree with dean C, and blog post author Bmaz on the sructural warnings in the post. I believe there’s a lot written since the last go-round with the debt ceiling, in ‘liberal’ quarters, which is merely exploring the ample ways to evade the way the lower chamber of congress has the power of the purse.

    Not being a constitutional historian, nevertheless, I seem to recall the real chance-taking liberals at that time remained concerned about, for example, giving the upper chamber of congress that power; too closely aligned with the aristocracy. Give the power to the representatives who legislate in the heat of the moment.

    Recognizing that much being written now has a certain tenor of cavil, check out that suggestion that Treasury merely create its own CDS instrument!.

    I am enough a student of history to trust congress to make it thru this standoff. If voters jetison the obstructionists, come 2014 elections, congress will be stabilized. I still see no grasp of the macroeconomic results of their strategy by the teaPartiers.

    Imagine, BushW with his own Pt coinpurse for starting wars…

  68. bmaz says:

    @JohnLopresti: John, those thoughts are a huge chunk of what underlies my reasoning and conclusions. In fact, not only was the original Constitution so designed as you describe as to the purse power being left to “the directly elected people’s chamber”, but that thought was reinforced in spades with the 14th Amendment. Section 5, of which, I referenced in the post was specifically included to insure that any such power and responsibility was kept far away from the Executive Branch, at the time helmed by one Andrew Johnson.

  69. jayackroyd (@jayackroyd) says:

    @bmaz: But so is all our other money, my friend. Manufactured. This idea of “backing” currency is long dead. Nixon pounded in the final nails.

    It’s too bad the MMT movement isn’t more prominent, because the Coin makes their central point about the nature of money. (Oh, the government SHOULD run deficits. Because government debts are held by private sector actors making investment in physical infrastructure.)

  70. jayackroyd (@jayackroyd) says:

    @bmaz: No. The government strikes the coin, includes the tender for all debts public and private, and we’re good to go. Just like a hundred dollar bill. Or, more importantly, an entry in the books in a money center bank.

    The stupid coin striking thing ILLUSTRATES that a fiat currency has no backing.

  71. bmaz says:

    @jayackroyd (@jayackroyd): Yeah? Well here is the deal. It does so within the allowance by Congress on everything but the freaking platinum coins that were crystal clearly intended for collector use only. So, when I say “backing”, I mean it is backed by Congressional intent and permission for the use intended. The “Platinum Coin” is not.

  72. orionATL says:

    again, i don’t have an understanding of this issue,

    but i do understandand, i hope commenters here understand and take to heart,

    that bmaz addresses the overarching issue in this first paragraph of his post:

    “… They came for the 4th Amendment, but it was necessary for the war on drugs. They came for the 5th Amendment, but due process had to be sacrificed for the war on terror. They came for the 6th Amendment, but confrontation had to succumb to classification and secrecy. They came for the War Powers Act because Libya was “required to be protected”. Now they are coming for one of the most fundamental of Constitutional checks and balances, the Congressional prerogative of the purse.

    Who are “they”? They are, of course, the ubiquitous Article II Executive Branch. And they have a never ending thirst for usurping power, all in the name of efficacy. It is always necessary, it is always an emergency, there is always a reason, for them to take the power. They are the Daddy Branch, and it is always best to trust them. So they say…”

    consider the oppression of “speech” in the police attacks on the occupy movement.

    consider the evasion of “search and seizure” provisions of the constitution by police and fbi who knock down doors and steal computers with nary a legal reprimand.

    consider the tracking and recording of american citizens’ conversations by the national security adminstration.

    consider the torture of war detainees.

    consider the failure to grant habeas corpus.

    consider holding human beings for more than a decade of their lives without a charge or a verdict.

  73. MikeD says:

    The platinum coin is (would be) a gimmick, and is therefore not… what?

    The government could mint the coin. They could deposit it, or attempt to. Consequences, on net desirable or otherwise, would flow. This would be constitutional, or it would be unconstitutional. But it would all be real. The “gimmick” language is completely irrelevant handwaving. Lose it.

    Your argument is that if this were done, it would be unconstitutional. Fine. Say that, and stick to it. If the president could identify an unmistakable gimmick that was both certainly constitutional and likely to be effective in reducing this supernova-like leverage over taxing-and-spending policy that the debt ceiling (really the constitution) provides them, would you still raise the objection that it is a gimmick? If what makes it a gimmick is that it is unconstitutional, then why isn’t enough to say that it’s unconstitutional?

    And, come to think of it, that raises an important point. An implication of the argument you are making here is that Congress is doing nothing more in this practice than exercising the legitimate prerogative given it over spending, taxing, and borrowing policy in favor of its (the controlling faction’s, but that’s the same) present particular preferences in those matters as against those of the current president. This should be stated clearly: institutionally if not substantively, you are four-square on the Republicans’ side in this fight, and as a general matter, you are uniformly in favor of Congressional debt ceiling (really, just general debt-authorization) hostage-taking, given the proper degree of substantive righteousness. You should confirm for your readers that this is true for the sake of clarity.

  74. Bay State Librul says:

    @orionATL:

    I understand your point.

    On the other hand whattabout the NRA using the 2nd Amendment to bolster their non “common sense” approach.

    If the Executive branch can show “harm” to the nation, I say use all
    legal avenues available.

    It’s the ying and yang of legal rag tag that drives me gonzo.

    I say fuck the House.

  75. bmaz says:

    @MikeD: No, you are not. And you can flat shove that scurrilous insulting bunk about about being “on the Republican’s side”. I am on the Constitution’s side, and there is a difference.

  76. MikeD says:

    Yes I am. It’s not primarily about R’s & D’s and I didn’t say it was, but in this case they would say they are simply and legitimately using the power the Constitution very clearly gives them, and you would wholeheartedly agree.

  77. MikeD says:

    Obviously, I’m not saying you agree with what motivates them to use this tool. But the implication of your argument is very clearly that the Constitution plainly and by design gives them the power to do exactly this, for exactly this *kind* of reason (i.e. straightforward budget preferences, if not *these particular ones*).

  78. TheraP says:

    @orionATL:

    You’ve underscored the apparent source of the problem. But I wonder if we shouldn’t also look under the rug of this apparent “executive power grab.” What’s driving that? Seems to me it comes from the president’s “national security briefings.” And where does that come from? The CIA. And what’s possibly behind the intelligence agency paranoia with which the president is constantly bombarded? I’d say it’s the moneyed interests related to Defense industries. (I’d include the war on drugs right in that ballpark, given the military’s role in that. And the war on “illegal” immigrants too. Gun makers/purveyors. Need to control the world’s oil, soil, waters, precious metals, etc. Even the idea that the president, who swears only to uphold the Constitution, is now described as somehow our protector in chief.)

    So, to me, the military industrial, oil&power-grabbing oligarchs appear to be undermining the Constitutional “protections” which bmaz so eloquently and vehemently speaks to. Which orionATL has summarized so well.

    Which leads me to ask: Has our constitution outlived its ability to protect ITSELF? Are we venturing (Have we ventured?) into territory where “to live by the Constitution” has already been subverted by a variety of powerful, wealthy forces – which are working against the founders’ ideals and the protections they put in place?

    I realize it may appear that I keep veering off of the topic as presented by bmaz. But we must never forget, I hope, that the constitution is a document, hammered out at a specific time and place. And that prior to this document is the Declaration of Independence, which in its preamble tells us that sometimes the current political system may need revamping.

    Is that where we are? I hope that bmaz, at some point, will address this pressing question. (I’m thinking in a future blog.)

    One caveat: If I through my own ignorance misrepresented anyone or anything in what I’ve said above, I stand ready to revise or retract such oversights. At the same time, I so appreciate this site – where honest disagreements can occur in the service of working together for the greater good – not only of our society, but of our world.

    One last thing: To me it is vital that whatever rights and freedoms we seek to claim for ourselves, that we also advocate the same for everyone on this planet. That our ideals must be inclusive ones, not exclusive. That’s where I’m coming from. Or try to.

  79. pdaly says:

    Without resorting to a platinum coin, perhaps Obama as Commander in Chief could act to “protect the country” by redirecting all the secured money in the military industrial complex to pay our debts. The money has already been released by Congress (and hopefully not fully spent).

    The military, depleted of its public money, could always get by on the black op drug money until Congress fixes the debt ceiling.

  80. selise says:

    @bmaz: @jayackroyd is correct. it’s a coin with a face value denominated in dollars. it can be used to pay dollar denominated liabilities.

    what constitutional difference does it make if that coin is given a face value of $100, $10K or $1T? or do you claim that a $100 coin would face the same constitutional issues you’ve argued in your post?

  81. selise says:

    @bmaz: i have seen no constitutional argument from treasury, fed or obama spokesperson. did i miss it?

    don’t you think the more likely rational was political calculation?

  82. bmaz says:

    @selise: Of course they do not put such reasoning in common public statements. They did not do so in 2011 when they had an OLC opinion (whatever the contents) either. No administration puts their legal advice out on display normally without a specific benefit and there is none to do so here.

  83. bmaz says:

    @selise: And if you have no proof to the contrary, so is yours. Stalemate. Tell me, if everything was as crystal clear as you and others claimed, what the hell do you think the hanging point was?

    And, frankly, I am willing to grant that a fair amount of the concern was just making the US appear to be a banana republic country of dunces, but that is going to be the case anyway if we hit default. So, tell me, what else do you suggest was the defining criteria?

  84. selise says:

    @bmaz: @bmaz:

    “And if you have no proof to the contrary, so is yours.”

    yeah. which is why we can’t use today’s obama/treas/fed statement as evidence for or against.

    “So, tell me, what else do you suggest was the defining criteria?”

    precedent of current and past usage and understanding of seigniorage

  85. selise says:

    @bmaz: sorry, didn’t mean legal precedent. rather, as in “go investigate how coins and the god almighty “seignorage” are used historically and by design. Is there ANY evidence this use is backed by intent?”

  86. selise says:

    bmaz, when you have the opportunity, would you please respond to my question asked above:

    “what constitutional difference does it make if that coin is given a face value of $100, $10K or $1T? or do you claim that a $100 coin would face the same constitutional issues you’ve argued in your post?”

  87. Mike D. says:

    Actually, the Treasury statement specifically says they do not believe carrying out the idea would be legal:

    ‘”Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” said Treasury spokesman Anthony Coley in a statement obtained by TPM.’

    My bold.

    http://livewire.talkingpointsmemo.com/entry/us-treasury-1-trillion-platinum-coin-is-not?ref=fpa

  88. selise says:

    @bmaz: in response to your statements above, and quoted here for clarity:

    …you affirmatively assert that there is evidence Congress intended it [seigniorage] be allowed to substitute for authorized debt? I will await that.

    …go investigate how coins and the god almighty “seignorage” are used historically and by design. Is there ANY evidence this use is backed by intent?

    there is SO much evidence i’m not sure where to begin. i guess i’ll provide a few random links and pull some quotes without attempting any kind of thorough review.

    some links & quotes to follow…

  89. selise says:

    from a GAO report

    National Coinage Proposals
    GGD-90-88, May 23, 1990
    http://www.gao.gov/products/GGD-90-88

    Appendix V Definition of Seigniorage
    from page 49

    The Department of the Treasury defines seigniorage as the difference between the face value of a coin and the coin’s cost of production. A coin’s cost of production includes the metals contained in the coin, the Mint’s manufacturing expenses, metal wastage from production, and the cost of distributing coins.

    […]

    Before 1968, seigniorage was treated as a revenue in the administrative budget, excluded from the consolidated cash budget, and treated as a means of financing. In 1968, the President’s Commission on Budget Concepts recommended that seigniorage be treated solely as a means of financing. That recommendation was adopted. As a result, today seigniorage itself has no impact on the size of the current budget deficit, but it does reduce the amount of money that must be borrowed from the public to finance the deficit. Thus, the amount of interest it saves does reduce future budget outlays and deficits.

    The recognition of seigniorage comes in three steps. First, as coins come off the Mint’s stamping lines and are turned over to in-house cashiers, gross seigniorage is recognized as the difference between the face value of the coins produced and the cost of the metal from which the coins were stamped. Second, on a monthly basis, the Mint reduces gross seigniorage by the costs of coinage operations and related overhead. Finally, the cost of transporting coins and the cost of any production wastage is deducted, and the difference is net seigniorage. Net seigniorage ultimately is accounted for as an off-budget receipt from the government’s authority to issue money, to be used for financing budget deficits. Although the Treasury recognizes seigniorage at the time coins are manufactured, it does not actually obtain value for newly manufactured coins until they are deposited with the Federal Reserve banks.

    Although seigniorage seems to be the creation of something out of nothing (because an off-budget receipt is recognized even though no cash is received from the public), it is an accepted practice of governments.

    my bold

  90. selise says:

    another GAO report:

    Addressing The Deficit: Updating the Budgetary Implications of Selected GAO Work for Fiscal Year 1998 GAO/OCG-97-2, March 14, 1997
    http://www.gao.gov/products/OCG-97-2

    from page 317:

    In 1996, GAO reported that if the Congress authorized the United States Mint to produce circulating commemorative coins, which are coins with distinctive designs that are issued at face value, the government could generate about $225 million in additional seigniorage annually. Seigniorage is the difference between the face value of the coin and its cost of production and distribution. Seigniorage is not considered part of the budget, but it does substitute for borrowing from the public and, thus, lowers interest costs to the government. Generating $225 million in additional seigniorage annually would result in about $16 million in interest savings on the national debt each year.

    my bold

  91. selise says:

    and here’s a bit from a congressional committee hearing transcript:

    FEDERAL MONEY PRODUCTION
    THURSDAY, JUNE 26, 1997
    House of Representatives,
    Subcommittee on Domestic and International Monetary Policy,
    Committee on Banking and Financial Services
    http://commdocs.house.gov/committees/bank/hba41979.000/hba41979_0f.htm

    beginning at page 78:

    Chairman CASTLE. …Maybe we should take a moment to explain what that seigniorage is and the significance of it. But I would just like to have you bring us up to date on your views of—now that we have a further update with this study—of where we are with the circulating commemorative quarters.

    Mr. DIEHL. I think this study pretty much confirms what the Citizens Advisory Committee and the numismatic community view was toward this proposal, and that view in a nutshell was that certainly the numismatic community was very enthusiastic about this proposal. But those who have been in the hobby and in the industry for many decades were convinced that the support of the American people and the enthusiasm of non-coin collectors would be very high for the program. That study clearly documents the strong, broad support that the American people would have for a program like this, and the bottom line is that the study comes to a conclusion that the 10-year program would raise additional seigniorage over and above what we would otherwise expect if we did not have the program, would raise between $2.6 and $5.1 billion in seigniorage over that 10-year period.

    The study also makes it clear that the seignorage estimates did not include estimates of demand for non-adults, those 18 and under. It was only focused on adult demand. So, I think it is reasonable to assume that these numbers certainly aren’t on the optimistic side, they are pretty conservative, and that $2.6 billion estimate was sort of the bottom line amount of seigniorage that could reasonably be expected.

    Now, that seigniorage, as you know, Mr. Chairman, does go into general revenue fund through the Mint’s public enterprise fund, but it is not on-budget revenue. It is off-budget revenue.

    Just like, by the way, any revenue that would come from savings from a $1 coin; that is all off-budget except for a very small percentage which reflects, based on the cost of capital, the Government’s cost of capital of borrowing, that represents the savings of borrowing costs from that inflow of money. And so there is some more modest amount that goes on budget, but the vast majority of the $2.6 to $5.1 billion is off-budget revenue.

    my bolds

  92. selise says:

    have you been reading philip diehl‘s recent comments & discussion?

    here’s one comment particularly on point:

    http://monetaryrealism.com/obama-will-be-forced-to-issue-the-coin/#comment-13802

    Philip Diehl January 10, 2013 at 2:01 am

    First, the “to meet public demand” language relates to the distribution and circulating or coins, not the minting of coins. Seigniorage arises from the minting of coins not from the Fed’s distribution of them. If seigniorage were booked when the coins left the Fed for the banks, the argument would be stronger.

    Second, I see no reason to read “to meet public demand” as being the exclusive motivation for minting coins, with seigniorage as a mere by-product. I know from experience this, in fact, is not the case. For example, I testified at a House committee hearing 6 weeks ago about a bill to eliminate the dollar note in favor of the dollar coin. The two are substitutes for each other as a medium of exchange, so why bother if that is their only purpose. The primary reason cited for favoring the coin is that it generates more profits for the government (because it has a longer lifespan). The biggest dispute was whether the seigniorage gain was $6 billion or $15 billion over ten years and whether those estimates might be low by a factor of 10.

    Similarly, a decisive argument I used to win support on the Hill for the 50 State Quarters program was the seigniorage windfall the government would receive from the 5-fold increase in quarter demand we expected. The old quarter was doing fine meeting public demand for a medium of exchange. Treasury held the utilitarian view of coinage and opposed the legislation. They were trumped by the seigniorage argument. A whole slew of other “circulating commemorative coins” have followed, none of then necessary to meet public demand for liquidity.

    The story of the Sacagawea dollar and the Susan B. Anthony follow similar lines.

    The dual motives of facilitating commerce by meeting public demand while providing a means of self-financing are not recent innovations. I’m not a scholar of the history of coinage, but I’d wager that one could cite examples of governments minting coins for both purposes back through the centuries.

    It occurs to me that coins can be viewed as a consumer product. Consumers buy them because they’re useful or because they want one of each of the 50 State Quarters, or for whatever other purpose. A producer meets that need, marks the product up, and earns a return. The motives of meeting customer demand and earning a return are tightly coupled.

  93. selise says:

    can we now agree that indeed there is evidence Congress intended it [seigniorage] be allowed to substitute for authorized debt and that it [seigniorage] has been used historically for that purpose?

    ………..

    back to my question above:

    “what constitutional difference does it make if that coin is given a face value of $100, $10K or $1T? or do you claim that a $100 coin would face the same constitutional issues you’ve argued in your post?”

    i hope you will answer this question because it seems to me that your constitution argument implies that current and past practice wrt to seigniorage is unconstitutional OR that it is the number of 0’s that determines the constitutional question.

    please note that i am NOT arguing the broad issue of constitutionally — only that your particular argument makes no sense to me unless you also claim that current practice and law wrt seigniorage are unconstitutional.

  94. selise says:

    @thatvisionthing: thanks for the link.

    i hope bmaz will respond to my comment @121 and more importantly, take advantage of this opportunity to challenge false dogma wrt federal government budgeting/spending/taxation (very different for currency issuer than for for the rest of us).

    anyway, since bmaz gave weisenthal and barro grief on twitter for not responding to him, i expect he will not do what he accused them of doing and respond here to my @121.

    https://twitter.com/search/realtime?q=bmaz+%40TheStalwart+%40jbarro&src=typd

  95. bmaz says:

    @selise: Only when authorized and ratified by Congress. As to the purpose contemplated here, we do not, and we will never, agree. It constituted a gimmick to usurp constitutionally apportioned powers and was ludicrous on its face. You can pull out this baloney until the cows come home. That was not the intent of the statute, Congress never waived their control power. End. Of. Story. It was lunacy, and it remains lunacy. And, yes, I understand what you are saying completely; it is irrelevant to the constitution’s powers argument, and clearly the governmental entities that count all agreed.

  96. selise says:

    please take the time to answer my specific questions, especially this one:

    “what constitutional difference does it make if that coin is given a face value of $100, $10K or $1T? or do you claim that a $100 coin would face the same constitutional issues you’ve argued in your post?”

    wrt: “Only when authorized and ratified by Congress.”

    done and done. wrt current and past practice and law the difference is in amount (number of 0s) — not a difference in kind.

    do you claim mint/treasury past and current practice is unconstitutional? if so, in what way(s).
    do you claim creation of fed is unconstitutional? if so, in what way(s).
    do you claim standard practice of fed is unconstitutional? how about QE? if so, in what way(s).

    assertions of “baloney” are not responsive.

    bmaz, you haven’t attempted to answer my questions or even to respond to the (little bit) of evidence i provided that indeed “Congress intended it [seigniorage] be allowed to substitute for authorized debt and that it [seigniorage] has been used historically for that purpose” which you claimed was not so (and a hat eating event if i could show evidence of it).

    and no, you clearly don’t begin to understand (which your comments show and is why i expect you will never get a response from weisenthal).

  97. bmaz says:

    @selise: I have repeatedly answered your question, you just do not like the answer. I can’t help that. What is the difference? Congressional intent and authorization. And, no a couple of obscure references do NOT overcome the fact there was no relinquishment of Legislative power and prerogative.

  98. selise says:

    GAO reports and congressional hearing testimony are hardly obscure references — and they are the sources i told you existed. you would know there are many many more such references — including in the congressional record — if you bothered to look. i gave a few examples. (besides you asked for ANY evidence, not a specified amount, for hat eating purposed).

    claims of “Congressional intent and authorization” are not responsive to my specific questions. how many 0s do you claim congress authorized? there is no seigniorage limit as there is now with the debt limit (there wasn’t always a debt limit). debt is just the amount of treasury securities issued. for the federal gov issuing treasury securities is not needed (in the economic sense) to finance spending (separate the two in your mind — as chemerinsky in the comment you quote, “The Constitution says that Congress has the power to borrow money. The President cannot do this by unilaterally raising the debt ceiling or issuing a trillion dollar coin,” has not done).

    legal constraints are imposed by congress. (i don’t see you objecting to frb QE spending on constitutional grounds – which also has lots of 0s and imo is far more problematic ).

    the $1T coin would use authority given by congress and it does not violate any congressional constraints: the amount of treasury securities issued would be as congress has legislated. spending would be as congress has legislated. accounting treatment of seigniorage would be as usual (and has been discussed in congress many times).

    if congress wishes to limit the amount of seigniorage, it can do that (just as it could put a cap on tax revenues but has not). if congress wishes to change the platinum coin minting authority it has delegated to the treasury, it can do so (as representative greg walden has proposed). legislative power and prerogative are not relinquished. the 14th amendment is not invoked.

  99. Mark says:

    ps I am making a formal request to [black hole] all /bmaz posts for, anti intellectualism may be the hegemony in white male American Conservative communities (sic) but this is not such a community.

    please emptywheel, act accordingly.

  100. bmaz says:

    @selise: We are at an impasse. I have answered your questions, I don’t really care about 0s, the point is that THIS use was NOT contemplated or approved by Congress as a method of evading their constitutional powers. And, no, enacting some pissant commemorative coin provision is not sufficient I see no reason to keep responding to the same question. You don’t like my answer. That is your prerogative, but this is pointless at this stage; you are going to believe what you believe, and I the same.

  101. bmaz says:

    @masaccio: For starters, this is the DC Circuit. Secondly, it is absolutely not a pure political question between adversary branches and/of interests of government as was the “platinum coin”. Instead, there are concrete case and controversy interests in the form of an individual and the employer. It is truly not a real political question in any sense of the term.

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