Coinage and political “Chicken”

Why the President doesn’t want the power to mint the Coin.

Update WH shuts down coinage. Josh Marshall and I are on the same page about why.

Second update Yes, indeed. Someone at 1600 Penn has read Schelling (or Thyucidides):

“This now puts all the pressure back where we believe it belongs: on the Republicans,” a senior administration official told the Huffington Post. “There are no magic coins. There is no way to get out of this. We feel fine about the politics of it. We think we are in a stronger position if Republicans realize there is no out.” [emphasis added]


Ryan Cooper makes a calm exposition of the case for the Coin, or, rather, for the coinage opt)ion. He advances the ball by describing in detail how the process would work, and I agree with him that minting million-dollar coins in quantity sounds less goofy than issuing a single trillion-dollar Coin.

But while I think Cooper is right technically, I think he, along with the rest of the pro-Coin team and all of the anti-Coiners, gets the politics precisely backwards.

Cooper is right to say that, if the coinage option were to be used, it would be desirable to prepare the public – and in particular the collection of hysterical economic illiterates that composes the political press corps – to understand how it works and why it’s not a threat to anything save the hostage-takers in the Republican Party.

[And yes, I’m still waiting for the anti-Coiners to explain what the President’s lawful courses of action are when the legal command of appropriations legislation to spend money runs into the legal prohibition to borrow the funds necessary to pay the bills.]

But like most of the discourse around the Coin, Cooper’s essay assumes that having a coinage option would strengthen the President’s bargaining position by making the Republican threat empty. That seems to be the consensus, reflected in the fact that Blue pundits mostly like the Coin while Red pundits all despise it.

But I would argue just the opposite.

In my view – and I think this is the view of the White House, though no one has told me so – the debt ceiling problem is a problem mostly for the Congressional Republicans. Their plutocratic paymasters won’t let them wreck the national credit, or even make a convincing gesture at doing so; some GOP Senators and Representatives (not including McConnell or Boehner) are even patriotic or honorable enough to think that the nation’s bills ought to be paid on time.

But the partial success of their previous extortion attempt gave the Grover Norquist wing of the party a taste of blood, and they’re going to be outraged if their leadership fails to at least hold a gun to the hostage’s head. Some of their membership, and a substantial part of their voting base, actually hates the Federal government so much that default would seem to them like a feature rather than a bug, on the way to a government small enough to drown in a bathtub.

Without the coinage option, and faced with the combination of their own unpopularity and the President’s popularity, Boehner and McConnell are stuck making a humiliating, and party-splitting, climb-down.

But putting the coinage option publicly on the table takes the pressure off them. They can just sit there and let the government hit the debt ceiling, in the calm confidence that no actual harm will be done and that Wall Street won’t get mad at them. Then, when the President takes an obviously extraordinary and only accidentally lawful series of steps to avoid hitting the wall, they can satisfy their constituents’ blood-lust by impeaching him for doing so, in the calm confidence that much of the aforementioned collection of hysterical economic illiterates will even-handedly report that some people think the President should be impeached, while of course Democrats disagree.

Thus putting the coinage option on the table converts a hard defeat for the Congressional Republicans into an easy political win. They don’t get their way on spending – at least via the debt ceiling – but that was a pipe-dream anyway. But they get up off the mat politically, and maybe that helps them get their way on spending via the sequester/continuing resolution process.

So, even though I think (tentatively) that the President would be legally bound to use coinage if necessary to avoid default, it seems to me that the White House is right to shrug off both coinage and the Fourteenth Amendment.

As Tom Schelling points out in The Strategy of Conflict, in a strategic situation having more options can be a disadvantage. In the game of “Chicken” – where two cars drive head-first toward each other, and the loser is the one who swerves first – the winning move is to throw your steering wheel out the window, showing the other driver that you have no ability to swerve, rendering the question of your willingness to do so moot. Then the other guy has to be the Chicken unless he wants to die.

The Coin advocates have been eagerly trying to hand the President a steering wheel. He’s been right to ignore them.

Footnote Cooper also glancingly endorses the “scrip” option, which I think is much worse than coinage. Issuing rather than making timely payment in cash is still, technically, default. And like any other option that involves actually paying some of the government’s creditors but not others, it would require the President to assume huge discretionary powers nowhere granted to him by law.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact:

53 thoughts on “Coinage and political “Chicken””

  1. Personally, I think the House should simply pass a debt ceiling increase including substantial spending cuts, and then adjourn. At which point it becomes utterly clear that any failure to increase the debt ceiling is due to Democratic intransigence about spending cuts, not Republicans “holding hostages”.

    1. So by adjournment, the House is throwing the steering wheel out the window. They are still playing chicken.

      What if the Senate takes that bill, reduces the spending cuts, increases taxes, and sends it back? The House does not have to stay away.

      But perhaps there should be a notion that the Democratic party was elected to the control of 2 out of 3 of the choke points here, they should have a proportional influence in the solution?

      1. The House can’t adjourn for more than three days without the consent of the Senate, and vice versa.

        But of course the real point is that the Republicans have no interest whatsoever in actually voting for politically unpopular budget cuts. That’s why they’re insisting that the President do their dirty work for them.

        And I’d note that Brett has still not answered the basic question: at the moment the government runs out of money to pay its lawful obligations, what is it the President’s constitutional obligation to do do?

        1. Continue paying for whatever fraction of them there is sufficient money to cover, with debt service taking priority.

          1. That is, bluntly, a decision which is up to the executive. Aside from the priority given to debt service, it’s in no way dictated by the Constitution, and any statutes by definition conflict.

      2. Mobius, of course they’re playing chicken, I’ve never denied it, in fact I’ve been quite specific about it. The point is, so are the Democrats. There’s no such thing as a game of chicken without two players.

        The Republicans throwing the steering wheel out would at least have the virtue of preventing the Democrats from pretending they weren’t playing, too.

        1. The ‘chicken’ game has been started by the Rs. That was their move.

          The Ds can either give in to the demands, or not. “Chicken” however is not my preferred analogy – ‘hostage situation’ is more correct, but that’s considered name calling.

          1. Except that the White House (and Mark) are framing it as a game of chicken. Byomtov asked a very good question about whether now was the right time to throw for Obama to limit his options. This is a particularly good question because the burning of the boats seems to have begun in December when Obama decided to trade his “fiscal cliff” leverage for a temporary deal in which he arguably gained some goodies in return for concession of structural issues and, of concern here, agreeing to defer both the debit ceiling crisis and the budget sequester negotiations until now.

            Specifically, the quote Mark highlights as expressed the brilliance of the White House doesn’t really make sense to me in the context of the situation in which we find ourselves. The White House source says: ““This now puts all the pressure back where we believe it belongs: on the Republicans,” a senior administration official told the Huffington Post. “There are no magic coins. There is no way to get out of this. We feel fine about the politics of it. We think we are in a stronger position if Republicans realize there is no out.” What is don’t understand is why is meant by the term “no way out”.

            Presumably, he means that the Republicans must realize that Obama has thrown away the metaphorical steering wheel and presumably we are all meant to marvel at Obama audacity and general wonderfulness at having so cleverly limited his options. But, one must ask, to what end?

            If Obama has indeed thrown out his steering wheel it is because he, like Mark, is absolutely certain of two things: The Republicans haven’t yet thrown out their steering wheel and they won’t because deep down they are rational people pretending madness simply to enhance their bargaining position or, in any case, their plutocratic masters will forbid them throwing out the steering wheel. If either or both of these assumptions are mistaken, Obama mistaken will likely trigger either a political maelstrom unlike any since before the Civil War.

            To address the second question first: By throwing “throwing out the steering wheel” I suppose we mean, in this context, that Obama has discarded every weapon to impose his will upon the Republicans (e.g., volunteering to extend the Bush tax codes, probably into perpetuity) or to defuse or circumvent the crisis (the coin, the 14th amendment option,etc). The questions that Byomtov and I are asking are (1) why this is considered to be a sound way to do things under game theory; (2) how has Obama actually gained an advantage? Can you describe it and its operation in concrete terms of how Obama and his supporters expect this to play out? Frankly, to me this sound like some know of mystic, new age lunacy.

            But my first question needs to be answered, too. What exactly does saying that Obama is throwing out the steering wheel mean? Surely Obama has kept for himself the perfect out—he has a backup steering wheel in the budget sequester negotiations and the Republicans surely must understand this. Indeed, doesn’t the fact that the negotiations over the mean that Obama hasn’t thrown out his steering wheel at all? By contrast, a very large percentage of the House GOP caucus look to me to be genuine, dyed-in-the-wool followers of Brother John Birch—with exceptionally safe seats—who wouldn’t have a steering wheel in their cars, even if you paid them. Seriously, think Brett with a safe House seat. Those people don’t really give a good goddam what the Villagers think and they don’t depend on Wall Street for campaign funds or wingnut welfare, either.

            Not to put too fine a point on it, these are not the people I’d want to play chicken with and neither are the financiers of the extreme right. Seriously, these people don’t even think cars should be equipped with steering wheels in the place. So explain to me how eliminating all the possible outcomes except the ones actually preferred by you enemy is a brilliant strategy.

        2. In other words, you think that it’s acceptable to threaten non-payment on obligations if you don’t get your way. I hope you never post on anyone having an ethical obligation to fulfill a contract.

          1. No, Brett. You are the one who is conditioning the payment of debts upon some other action. You are the one who is attaching unrelated conditions to it. I want to pay those debts, full stop. I do not think that some other action is necessary to justify it. That you don’t understand the difference, or at least pretend not to, is telling.

    2. While I don’t want to recognize BB’s existence (DNFTT), I’ve seen this advocated elsewhere. It isn’t going to happen. It’s very hard to get Congressmen to vote for unpopular measures (and recognize that specific spending cuts are unpopular — however popular “spending cuts” in the abstract may be); it’s damn near impossible to get them to vote for unpopular measures purely as a symbol. There simply is no way that Boehner is going to get 218 Republicans to vote for a package that specifies particular spending cuts. Hell, he only managed to get 220 to vote for him as speaker.

    3. Brett, they tried that in every previous dispute with Obama. The house passed cut cap and balance. They passed the Ryan plan. They extended the Bush tax cuts.

      This messaging doesn’t work because everyone knows that it is just gamesmanship.

      1. I think you are right about the messaging not working because it is so transparently opportunistic and insincere. But I think there’s something else going on here that’s very important and easy to overlook. What the Republicans want isn’t simply budget cuts; what they really want is for the president and the Democrats in Congress to agree to take the lead in doing the heavy lifting to get them passed. That means Republicans can’t be blamed for cuts to popular programs but it also means, as we saw in 2012, that they will be able to run as the protectors of those programs such as Social Security and Medicare.

        I think that’s what’s really going on here and not simply that the Republicans can’t get it together enough to specify the cuts they want. What they want as a condition of raising the debt ceiling is less the budget cuts and more forcing Democrats to be the ones saying what gets cut and telling Grandma that she needs to learn to enjoy cat food because her Social Security check is about to shrink. That’s the method to the Republican’s seeming madness.

        1. Excellent point. Of course, it also doesn’t hurt that it keeps us from having the conversation that we should be having: That there will scarcely be a better time than now nor more critical reasons than our current state to borrow like there’s no tomorrow.

    4. What makes you think the House Republicans can pass a debt limit increase, even with substantial spending cuts? I guarantee the number of Democratic votes for such a measure would be identically zero, and Boehner hasn’t exactly had an easy job of making it to 218 with just his caucus. I mean, we just saw this movie with the Plan B fiasco. There is a very real hostage-taking caucus within the Republican party, and I can’t imagine how Boehner could get them in line for any debt-ceiling increase.

  2. Well, darn. That’s pretty convincing. I was enjoying this coinage thing, and now I’m going to enjoy it a good deal less. Thanks anyway, though.

  3. “I’m still waiting for the anti-Coiners to explain what the President’s lawful courses of action are when the legal command of appropriations legislation to spend money runs into the legal prohibition to borrow the funds necessary to pay the bills.”

    In order to comply with the 14th Amendment, the President must first pay the debts of the United States, and then prioritize among what is left. Quite a few legal experts have explained how this works, and why it is what is required if the debt limit is reached. Under the 14th Amendment, the debts must be paid so long as receipts are greater than debt obligations — so failure to increase the debt limit would not actually cause default. It would, however, give the President significant discretion about how to spend available funds, which Republicans might not like.

    1. The Republicans might like it just fine. Maybe not the Birchers or Paulites but my guess is that Obama will cut social spending in preference to stuff like corporate welfare or military spending or highway building. Basically, I think he’ll prioritize the stuff that’s important to the US Chamber of Commerce over the stuff that’s important to the base of the Democratic Party. Whether he does it because he’s a moderate Republican or because he wants to show that he’s and “adult” with “good conservative” economic priorities, only he and people really close to him can know.

      But my prediction about what gets funded and what doesn’t is that whether Obama’s a liberal who is a poor negotiator or the guy who appointed only budget/deficit “hawks” to his catfood commission, one thing is clear: There’s a good chance that Grandma better not only learn to develop a taste for catfood, she’d better hope the local Piggly Wiggly is going to let her have buy the stuff on credit until this thing gets resolved

  4. I agree with you. The platinum coin option totally lets the Republicans off the hook, and opens the door for a movement to impeach Obama–something the radical right has been looking to do since before the 2009 Inauguration.

    1. So what? This is like saying Obama shouldn’t do something because it will enrage the right. They’re already at maximum wing-nut already; do you think Rush Limbaugh or Drudge are going to ease up if Obama appeases them? Don’t you think the Republicans would have impeached Obama’s ass a dozen times already if they thought impeachment would be politically survivable?

      There nothing Obama could do that would make these people happy short of resigning in favor of Paul Ryan. But, I’ll tell you this much, if Obama ends up being maneuvered yet again into being the one to propose cuts to social spending like Medicare or Social Security, it’s the Democrats who will pay in 2014 and 2016, just as we paid in 2010.

      1. Peak Wingnut is a lie!

        Obama should not do it because it gives the Rs a potent weapon to use against him and the Democrats.

        1. Whereas either a total economic meltdown the like of which hasn’t been seen since 1929 or serious cuts to social spending (such as Social Security and Medicare, which Obama has already put on the table) passed almost entirely with Democratic votes will simply be shrugged off by voters in 2014 and 2016?

          Given a choice, I use the 14th Amendment option, then the coin long before I’d put all those cuts to popular programs in the jackpot and then force vulnerable Democrats to take the lead on passing them (which is what Republicans are actually demanding). Remember how well that worked during the 2010 midterm elections when the Republicans ran against all the Democrats who voted to “cut” Medicare?

  5. Impeachment?

    For taking wholly legal steps to meet his obligations? How does that work? Are there really so few decent Republicans in the House that Obama would actually be impeached? If so, we are in worse trouble than I thought.

    1. Are there really “so few decent Republicans in the House” is a strange question to ask at this late date. They started talking about impeaching him shortly after he was elected and there were renewed mutterings during his re-election campaign. Only the massive electoral damage the Republican brand sustained during the Clinton impeachment has given the leadership pause and stayed their hand.

      I’d say it’s better than even money Obama get impeached.

      1. I’d say it’s better than even money Obama get impeached.

        Only to be found innocent at the trial in a Democratic Party controlled Senate.

    2. Since all indications are that President Obama is a devoted family man, I think it falls here under that provision of the Constitution about impeachment for high crimes, misdemeanors and not accepting blowjobs from an intern.

      With the House Republicans, it’s all Calvinball.

  6. Jonathan:

    The President has no constitutional authority to refuse to spend money that Congress directs him to spend. This was settled in the 1970’s when Nixon asserted that power.

    No matter what Obama does, he violates some part of the Constitution, unless the coin or IOU’s are legal.

    What you seem to want is for him to choose the option that violates the Constitution AND destroys the economy.

    1. What you seem to want is for him to choose the option that violates the Constitution AND destroys the economy.

      And is the greatest expansion of executive power. And happens to meet Republicans’ claimed objectives. Funny how that legal analysis works.

  7. Here is what I don’t understand: The president has now disavowed all the unilateral measures to avoid the debt ceiling even though many nationally respected Constitutional law experts have said that both the 14th amendment option to nullify the “debt ceiling” and the platinum coin option to circumvent it are legal. Many highly respected experts in economics have opined that there will likely be no adverse effects from either of these options.

    The question is what options remain to Pres. Obama now that he has essentially declared that he will neither negotiate over the debt ceiling nor act unilaterally to defuse the crisis? It seems to me that there are only two possible outcomes.

    The first is that Obama replays his negotiations of 2011 which he deemed a success because he obtained a few temporary measure to ameliorate the economic situation and he secured cuts in social spending that I believe he (as a moderate Republican), in fact, thought were desirable. (Alternatively, once can believe that Obama is an ineffectual and unskilled, but liberal, negotiator who simply got rolled—doesn’t change the analysis).

    That means social security and Medicare are once again on the table. As will be the few remaining parts of the Great Society and New Deal that Obama and the Republicans have previously been unable to reduce. As I mentioned before, I think Obama will take advantage of the fact that, because he chose to forgo the unique position of advantage he had in December of last year, he will be simultaneously negotiating both the debt ceiling and the budget sequester. My prediction is that Obama will declare that he didn’t fold on the debt ceiling and negotiated a good deal on the budget (even though it will almost certainly have disastrous cuts in social spending). Basically, the same spin as in 2011 with the usual suspects singing his praises and castigating liberals as people who don’t understand eleven dimensional chess.

    The second alternative may actually be worse all around. Let’s say that Obama is sincere and steadfast in both his refusal to negotiate about the debt ceiling and not allowing cuts in social spending during the sequester negotiations. But let’s also assume that the House Republicans think that Obama is a liberal Democrat (as opposed to a moderate Republicans). That means they’re sure to think that they’ve taken him to the cleaners every time.

    If they do think Obama is a “weak-tight” player, then they might actually do exactly wants Brett wants, namely, passed a budget with a debt ceiling increase but huge spending cuts and then walk away from the table. If Obama has renounced all possibility of bypassing Congress on the debt ceiling, what options are left to him except abject surrender or an economic disaster of biblical proportions?

    Just as an aside, even if you believe (as I have come to believe) that Obama is actually a pretty skilled negotiator who is satisfied with the “moderate Republican” results he’s achieved (more by backing down the Democrats than the Republicans) it still seems to me that he may have overplayed his hand this time by renouncing every unilateral avenue of power open to him. If the Republican don’t swerve by agreeing to only moderate cuts in social spending, we could be heading for a real head-on collision.

    1. Also, I’m still confused about why we are supposed to think the cliff deal was any good. Why the bleep did we just have an election, if we are still going to have this nonsense every time we turn around?

  8. Mark,

    Two serious questions:

    Based on past form (and especially in the aftermath of the “fiscal cliff”), if you had to bet on who would not be able to walk away from the table (i.e., throw out the steering wheel)wouldn’t the smart money be on the Republicans?

    What happens if both sides toss their steering wheels out the window?

      1. Maybe.

        And with all due respect to Thomas Schelling, which is quite a lot of respect indeed, he said limiting your options was a good idea sometimes. Is this one of those times?

        Part of the benefit is the effect on your own troops. “There’s no retreat. The ships have been burned.” (Sun-Tzu made a similar point, IIRC.) I don’t see the analogy here. Nor do I see what threat Obama is making. Help me out.

        1. “Part of the benefit is the effect on your own troops. ”

          Very interesting point. I would guess (shrewdly based on the reaction at many blog) demoralization on the left, unless/until folks like Mark can rally them. If the coin option is gone, presumably the probability of a negotiated deal involving spending cuts rises, yes? The White House manly talk notwithstanding.

          Obama is a pretty cautious guy – is he really the one you want leading your side in a game of chicken?

          Plan A: the economy gets wrecked but Obama can successfully blame the Republicans so no worries (other than vast human misery), or

          Plan B – Obama agrees to some spending cuts he will probably have to agree to eventually anyway.

          Given his track record, I know how Republican will bet.

          That said, I think folks ought to evaluate the California scrip plan more closely. The coin option actually is legally deeply problematic, as the lawyers announced, so Obama took off the table something that was not credibly there.

      2. There’s a great line in John Wayne’s movie El Dorado that somehow seems to fit very nicely here: “Faith can move mountains, but it can’t beat a faster draw.”

      3. That same logic should have determined the outcome of the fiscal cliff. It didn’t. Obama blinked and they kicked the can down the road. Which is probably what will happen again this time but with deep cuts to the social safety-net. If I was a betting man I could probably secure my retirement on this one.

      4. Mark,

        The ‘movers and shakers’ can forego their interest income for a while, much more comfortably than the rest of us can. They know full well they will get the money back eventually. If they deem their political goals more important, they are fully capable of letting the chips fall where they may. A GOP emergence from the chaos means they get paid back + enhanced economic and political control.

  9. Then, when the President takes an obviously extraordinary and only accidentally lawful series of steps to avoid hitting the wall, they can satisfy their constituents’ blood-lust by impeaching him for doing so, in the calm confidence that much of the aforementioned collection of hysterical economic illiterates will even-handedly report that some people think the President should be impeached, while of course Democrats disagree.

    In practice, the Republicans are going to impeach the guy anyways, so the ’cause’ they produce is irrelevant. Trying to avoid giving them cause is abandoning your maneuvering room.

    And like any other option that involves actually paying some of the government’s creditors but not others, it would require the President to assume huge discretionary powers nowhere granted to him by law.

    Act of Congress Establishing the Treasury Department (
    Section 2. And be it further enacted, That it shall be the duty of the Secretary of the Treasury to digest and prepare plans for the improvement and management of the revenue, and for the support of public credit; to prepare and report estimates of the public revenue, and the public expenditures; to superintend the collection of revenue; to decide on the forms of keeping and stating accounts and making returns, and to grant under the limitations herein established, or to be hereafter provided, all warrants for monies to be issued from the Treasury, in pursuance of appropriations by law;[…]

    The Secretary of the Treasury sign the warrants issuing the money to the departments. This is not a magic act – there is no SHAZAAM that results in money spontaneously moving from incoming taxes to outgoing checks. Someone has to make decisions, and someone has to have the discretionary authority to make decisions about how incoming money is allocated on an outgoing basis or otherwise nothing would happen and we would have no government. That person is the Secretary of the Treasury, who must allocate the appropriated money from receipts *as* *best* *he* *can*. But if there is not enough money, then his discretion comes into play. I would assume that the SoT, in the event of hitting the borrowing ceiling, would simply make sure to allocate cash to debt service as the first priority, and then try to allocate the remaining monies as best he can, but he doesn’t have to.

    I really don’t understand why, during these arguments, people trying to argue that the executive branch has no discretionary powers when it has clearly been delegated discretionary powers. Twixt now and later, they have to spend the money, but it doesn’t detail (usually) how every individual dollar is to be shelled out on each and every day. Because that would be insane.

    Boehner and McConnell are stuck making a humiliating, and party-splitting, climb-down.

    Or they don’t, and Obama surrenders, as is his style.

    they’re going to be outraged if their leadership fails to at least hold a gun to the hostage’s head. Some of their membership, and a substantial part of their voting base, actually hates the Federal government so much that default would seem to them like a feature rather than a bug, on the way to a government small enough to drown in a bathtub.

    Yep. And due to that, and the desire of Boehner to remain in charge, we just might blow through any deadline. (Which brings us back to whatever method.)

    Since I would proceed from the knowledge that I would be giving them nothing, I would simply use whatever method came to hand to avoid defaulting, but clearly the President expects to sign off on whatever deal they can force on him, so there it is.

    [‘This should be lovely.’]

  10. Prof. Kleiman, In terms of negotiation between Obama and the House, I am sure you are right, and their masters will likely reign in the House republicans. I hope the bond markets see it like you do. They might not be followers of Schelling, however. If you’re a debtor, the first concern is that the debt is paid. The possibility — even if according to game theory it won’t happen — of a political collision that interrupts debt re-payment will affect how secure you feel holding U.S. bonds. On the other hand, having Obama say that the House can play all the games it wants, but we will pay our bills, is reassuring. So yeah, the negotiation and signalling stuff is all great from an internal political point of view. That’s not the only point of view. I’ve read hundreds of bond rating reports. The perception of political stability when it comes to paying debts is a very basic element to having well-rated bonds. At the end of the day, anything that looks like the U.S. might not be paying its debts is very very nervous making. We now pay 2% on our bonds. It’s all fun and games until our interest rates go up. I hope you are right and I am wrong.

  11. The White House has not taken off the table the two remaining options, consistent with the letter by the Democratic Senate leadership: (a) scrip; and (b) ordering Geithner and Bernanke to ignore the debt limit and spend the full appropriations as an emergency measure under the 14th Amendment.
    Since scrip requires detailed technical preparation that Treasury apparently has not done, any more than the instant across-the-board cuts imagined by Brett, we are left with (b), which can be kept secret until the last minute.

    1. (1) No, the 14th amendment is apparently off the table.

      (2) Apart from the logistical impracticalities with issuing scrip, it seems to be actually the least legally acceptable way out. Either script is debt, in which case it’s really the same as just telling the Treasury to just ignore the debt limit. Or scrip is basically a shadow currency which (given the amount of money necessary to resolve the current impasse) would massively exceed the statutory limit on currency in circulation and arguably bring us back to where we were when the Legal Tender cases were decided.

      By the way, that’s one reason why California was very clear that the “scrip” it issued wasn’t currency.

      (3) What we are left with is this idea that Obama has somehow strengthened his bargaining position by removing all ways to avert the crises thereby creating a binary choice between “Congress must do its job” and abject surrender by either Congress of the president.

      I know I’m repeating myself but I really want a straight, non-Zen like analysis of why what looks like a deliberate choice to divest himself of both unilateral ways to avoid the crisis and of the leverage he held in December makes a good outcome (from a liberal perspective) more rather than less likely.

      Paul Krugman has two excellent posts up on his blog today that very nicely summarize my feelings on this question. He concludes thus: “is there a plan, or will it just be another case of tough talk followed by a tail-between-the-legs retreat? As I said, if we didn’t have some history here I might be confident that the administration knows what it’s doing. But we do have that history, and you have to fear the worst.”

      But the other point which isn’t being addressed here is that Obama may be talking tough but, as a practical matter, because the discussions of the budget sequester will be taking place at the same time as the non-discussions on the raising the debt ceiling, the tough talk doesn’t seem to have that much backbone behind it, and the Republicans obviously knows this. Obama seems to be burning his boats so that his not entirely happy army of liberals in the Democratic base has no choice except to follow him but he also seems to be implying that the way forward involves not victory over Republicans but rather the making of significant concessions to them on social spending; else why would he have given interviews saying exactly that and then orchestrated this affair so that the negotiations would take place with Democrats at their weakest but with an ability to buy their way out by folding on social spending during the budget sequester negotiations?

      So I repeat myself: Doesn’t the way that Obama has structured this confrontation make the most likely resolution a choice between (1) Obama turns chicken and agrees to most of the significant social spending cuts demanded by the Republicans but under the guise of the budget sequester or (2) Obama turns chicken but with the same song and dance as 2011 about how it’s necessary because the Republicans are irresponsible.

      What reassurances can anyone give to a person of the liberal political persuasion, as opposed to an Obama devotee, that the outcome will to his liking? Apart from yet again telling me that a crap sandwich is a tasty delicacy.

      1. The source for the White House’s 14th Amendment position is simply its spokesman Jay Carney in December: “This administration does not believe that the 14th Amendment gives the president the power to ignore the debt ceiling — period.”
        Clutching at straws:
        – Jay Carney is neither Obama nor the OLC. He can be disowned. Obama can change his mind if the GOP doesn’t fold as he expects.
        – There’s a distinction between unilateral raising of the debt limit and ignoring it as a temporary measure. Carney’s statement rules that out, but isn’t gospel.

        On scrip: a thought experiment. The debt ceiling isn’t raised. The only way Geithner can stay inside the debt limit, given the impossibility of programming a selective approach he apparently hasn’t prepared for, is a proportional cut in all outgoings other than debt interest. The reduced cheques have to go out with some kind of explanation. The letter has to say that the full amount is still due and the difference will be paid once Congress comes to its sense. Now what is the difference between such a letter and scrip? Won’t it have a secondary market value?

        It will be important that the letter mention the sum still owed; that’s surely easy enough to program.

        1. I don’t see any principled basis for arguing that scrip is legal. If it’s debt, the Treasury is simply distributing t-bills instead of selling them. If it is currency it will greatly exceed the amount that can legally be put in circulation and is probably illegal anyway. If it is a cheque accompanied by a letter saying don’t try to cash this cheque because it will bounce, it’s nothing.

          1. “If it is a cheque accompanied by a letter saying don’t try to cash this cheque because it will bounce, it’s nothing.” That’s not what I wrote. The idea is that if you are owed $100 by Uncle Sam, you get a bankable cheque for $62.75 (or whatever Geithner sees in the kitty that week) plus a letter saying that you are owed another $38.25, which will be paid when Congress comes to its senses. The second amount is a receivable, which Goldman Sachs will take off your hands for $30 or something.

  12. …I’m still waiting for the anti-Coiners to explain what the President’s lawful courses of action are when the legal command of appropriations legislation to spend money runs into the legal prohibition to borrow the funds necessary to pay the bills…

    Well, wait no more. They’re basically the same as they would be if Congress passed a law requiring the President to transmute lead into gold, or cure the sick with a touch, or jump fifty feet into the air under his own power: he simply can not comply. If the President is ordered to spend a million dollars, and the treasury does not have a million dollars, and he can not legally print or borrow the money–he can’t spend. I don’t think it’s especially complicated: a contract which becomes impossible to fulfill is void; an illegal order is not binding.

    What stands in need of explanation is the idea that the President should be able to do any damn thing because he is faced with a conflict in law. In logic, we say “anything follows from a contradiction,” but not in law. Conflicts in law come up all the time. You make the best call you can, and start typing the legal briefs.

    What also stands in need of explanation is why anti-coiners have any particular burden here. The view of the Administration, and of the Federal Reserve, is that the statutes do not give them legal authority to mint a trillion dollar coin. Maybe that’s the right view, maybe not, but what is certain is that the precise interpretation of 31 U.S.C. 5112(k) has nothing to do with the debt ceiling, or what happens if we don’t raise it. These are separate questions.

    The part that is admittedly complicated is what happens when Congress orders a million dollars of spending, and the treasury has half a million. The 14th may come into play here, and the Administration may plausibly argue their right to establish rules for prioritizing spending in the absence of Congressional guidance. We’ll see how it goes, if and when.

    1. First, on the legality of the platinum coin, I think the anti-Coiners have the burden because the plain language of all of the relevant statutes says the Secretary of the Treasury can mint a coin and can ascribe to it whatever value he wants provided the coin is made from platinum. You’ll notice that the leak from the White House, Treasury, Federal Reserve or wherever wasn’t accompanied by any kind of legal analysis. That’s because the statutes in question don’t have any exceptions for “stuff that seems silly” and many legal experts such as Prof. Tribe have looked at the law and concluded that minting the coin is perfectly legal. What bothers me about many of the anti-Coiners is that having concluded that minting the coin is “silly,” they are will to make dismissive, even silly legal in support of what they take to be Obama’s view. Bottom line: Congress wrote what it wrote and the president signed it into law. If you accept the legality of the coin, then it clearly resolves the immediate crisis so the burden is to show why the solution of minting the coin isn’t a good/wise/desirable as some other alternative.

      Second, it isn’t clear that these laws are in conflict or that the executive branch can imply a right to prioritize the paying of bills (except, obviously, for the national debt which is made obligatory by the 14th Amendment itself). That’s the point of those who argue in favor of the 14th amendment solution. I have now reread Prof. Tribe’s article against the 14th Amendment option and I have changed my mind about its legality, at least in the abstract. The two points that Tribe doesn’t consider are what happens if the amount of debt to be redeemed together with the interest payments on the debt exceeds the amount of cash the government has on hand at that time. What are the implications under the 14th amendment for borrowing at the point? Can the Treasury anticipate running out of money for the amount of debt scheduled to be redeemed and act accordingly, in which case the 14th Amendment solution could be expanded to basically override the statutory debt limit altogether?

      The other point about the 14th Amendment option is the question of whether its legality actually matters if, as most Constitutional laws experts have suggested, the president’s actions are insulated from review by the requirements of standing and other largely prudential doctrines the Court has developed to avoid political questions such as would be presented here.

      Similarly, the other proposal I have advocated (based upon the Nixon era EPA case) is that the president could simply imply that his duty to faithfully execute the laws combined with the prohibition on presidential impoundment creates an inherent executive power/obligation to borrow or mint the coin if that is reasonably necessary to accomplish his duty to basically pay the bills authorized by Congress. I believe this two would be insulated from judicial review for the same reasons, mostly related to standing.

      1. “Legality” ultimately comes down to what five Justices of the Supreme Court will vote for, and we know how three of them would vote without bothering to ask. For whatever it’s worth, if I were on the Court, I would vote to uphold the legality of a 1T coin. But I’m not, so I can’t, and there are genuinely non-hackish arguments to be made on both sides. See Posner’s recent piece in Slate, for instance.

        And again, “standing” comes down to whether you can find a judge, somewhere, to let a case go forward. Standing is in fact one of the murkiest and least consistent concepts in our legal system. I have read some seemingly very good analyses arguing that the lawsuits against the Affordable Care Act should never have been allowed to go forward, for example. And yet they did.

        You do touch on something important, which is that if the 14th Amendment or some other principle allows the Executive to take extreme measures to avoid default, then the Platinum Coin doesn’t really enter into the discussion in the first place. The 14th Amendment certainly doesn’t know or care about 31 USC 5112 (k); any avenues it opens for the President exist independently of platinum proof coins. But why should such powers, if they exist at all, be limited to coining money or borrowing? Why couldn’t the President levy taxes on his own authority, or sell off Federal property, or seize private property, or invade Canada? Because some of those options “seem silly?”

  13. This really comes down to a collective action problem on the part of plutocrats. Every 1-basis-point persistent movement in Treasury interest rates impairs their wealth by roughly half a billion dollars. Not much on a grand scale, but certainly enough to have a polite word with the 100-odd people who are acting as primary roadblocks.

  14. Here’s something I’ve never understood: Is the Fed subject to the debt ceiling? How does the Fed engage in quantitative easing or other monetary policy?

  15. @ James Wimberley,

    Now that you’ve clarified your proposal, I’m totally against it regardless of its dubious legality. What you’re proposing is the loan-shark relief act of 2013. Your solution is that if grandma or the UCLA Medical Center or Lockheed needs more than what’s in the real cheque to get through the month, they should go to a loan-shark? Legal or not, I don’t like it and I don’t see why you like it better than the coin? If the government owes people money, they should be paid the money and not be expected to deal with trash like Goldman Sachs to get a fraction of what they’re owed every time we have a debt ceiling crisis.

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