Coingate

I wanted to be the first to, um, coin that phrase with respect to the debt ceiling solution being bandied about (A quick Googling shows Coingate is already in use.)
 
The platinum trillion dollar coin gambit is really intriguing and is a wonderfully bold move by the Obama White House, even if it’s merely a trial balloon and likely a bluff.
 
But it does point out the humiliating lack of options the GOP is left with in terms of enforcing their agenda in the teeth of gale force winds of change blowing against them.
 
It seems weird that the GOP, despite having been outflanked time and time again by Democrats ever since the election, haven’t sat down and decided “Fuck the Teabaggers. We have to do something to get into the game.”
 
It’s sort of like the Washington Generals benching their starting five agaisnt the Harlem Globetrotters and electing to send out a troop of Cub Scouts. At least the adults might score a few points, even if they’ll still get outshined.
 
President Obama can cite the 14th Amendment, which states that the debts of the Federal Government shall never be questioned, and demand the Republicans raise the debt limit (indeed, there ought not to be a debt limit, except as a sham to debate the kind of spending we are doing…and oh by the way, where were these jackasses when Dubya was handing out tax cuts and defense spending like lollipops?). He can pay down a sizable portion of the debt by minting a trillion dollar coin and depositing it with the Federal Reserve. He can use his bully pulpit and beat the crap out of the GOP leadership until they come back and negotiate in good faith. Or he can shut the government down and turn off the Teabagger Hoverounds.
 
The GOP? Doesn’t have a whole lot of options here.
 
In the end, this is pretty much all posturing, barring an internal revolt amongst the House Republicans: the debt ceiling will be raised, Obama will be hoisted as a boogeyman, and spending cuts will be enacted, including defense.
 
Nobody will be happy. Politics as it ought to be.

6 comments to Coingate

  • President Obama can cite the 14th Amendment … and demand the Republicans raise the debt limit

    Even assuming that the 14th Amendment is about two centuries of the overall debt and not as it seems to be, about assuring that Northern costs of the Civil War will be absorbed while Southern costs will not be, the amendment has to do with questioning the validity of the existing debt. The debt ceiling has to do with creating new debt. What does one have to do with the other?

    Surely you aren’t suggesting that the 14th Amendment be interpreted to read that “The ability of the Executive Branch of the United States to create new debt shall not be questioned” are you? I’m not defending freezing the debt ceiling, but some of the arguments against that idea are bordering on bizarre.

  • matttbastard

    Edward Kleinbard:

    [T]here is a plausible course of action, one that the president should publicly adopt in the coming weeks as his contingency plan should debt-ceiling negotiations falter. He should threaten to issue scrip — “registered warrants” — to existing claims holders (other than those who own actual government debt) in lieu of money. Recipients of these I.O.U.’s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.

    The scrip would not violate the debt ceiling because it wouldn’t constitute a new borrowing of money backed by the credit of the United States. It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay. The president could therefore establish a scrip program by executive order without piling a constitutional crisis on top of a fiscal one.

    To avoid any confusion with actual Treasury debt, and to be consistent with the law governing claims against the United States more generally, the scrip would not pay interest in most cases. And unlike debt, it would have no fixed maturity date but rather would become redeemable in cash only when the secretary of the Treasury was able to certify that there’s enough money available in the Treasury’s general fund to cover it.

    Finally, the scrip would be transferable, allowing financial institutions to buy it at a high percentage of its face value, knowing that the political crisis would almost certainly be resolved before long.

    The federal Anti-Assignment Act generally prohibits the transfer of claims against the United States from one private actor to another, but the government could waive the act’s application, which is what the president would do here.

    The strategy may sound far-fetched, but it has been used before: in fact, California relied on it as recently as 2009.

    • Thomas Lord

      You can tell just exactly how “humiliating” the GOP’s position is and how much it harms their agenda just by noting that all the options proposed for the administration ($1T coin, 14th Amendment stretch, scrip) begin “Step (1): unilaterally create a major Constitutional crisis.”

      And then I guess step (2) is, as The Brain used to say: “In the ensuing chaos, TRY TO TAKE OVER THE WORLD.”

      • matttbastard

        How exactly does federal scrip “unilaterally create a major Constitutional crisis?”

        Kleinbard suggests it as an alternative to the 14th Amendment/$1T coin precisely because he contends that doing so “would not explicitly challenge any constitutional allocation of powers.” (Kleinbard: “The scrip would not violate the debt ceiling because it wouldn’t constitute a new borrowing of money backed by the credit of the United States. It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay. The president could therefore establish a scrip program by executive order without piling a constitutional crisis on top of a fiscal one.”)

        • Thomas Lord

          I think that any meaningful “scrip” proposal would, for starters, run afoul of the Antideficiency Act [Wikipedia]. A scrip proposal would be an attempt to usurp Congress’ Article 1 fiscal powers.

          I think Kleinbard is excited that scrip would not obviously violate the debt ceiling law per se but he needs to look more broadly to assess the overall constitutionality of the proposal.

          • matttbastard

            Any constitutional experts (because I certainly don’t fit the bill) care to weigh in? Not to dispute your expertise/constitutional interpretation, but so far of all those who have publicly responded to the scrip proposal, nobody other than yourself has questioned the constitutionality of Kleinbard’s trial balloon (even Pat Brennan @ NRO doesn’t claim scrips would constitute an Article 1 violation).

            Obviously this doesn’t mean you are necessarily incorrect, nor that I think this is the least-bad option; but I remain unconvinced despite your steadfast certainty that scrips are a no-go from the get-go. (My overall concerns about this and other proposals tend to dovetail with those of bond analyst Nancy Vanden Houten (via Dylan Matthews): Regardless of what stopgap measure is undertaken if a deal can’t be reached, “the sheer amount of political dysfunction that renders such solutions necessary might spur ratings agencies to downgrade U.S. debt.”)

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