Posted by AzBlueMeanie:
Yesterday, Ezra Klein argued that minting the platinum coin simply puts off dealing with the real problem — GOP recklessness and extremism — and risks turning us into a banana republic. Paul Krugman responds that the threat of default and economic Armageddon mean this is not the time or place for staging an epic confrontation with GOP nihilism. Coins Against Crazies:
Under the Constitution, fiscal decisions rest with Congress, which
passes laws specifying tax rates and establishing spending programs. If
the revenue brought in by those legally established tax rates falls
short of the costs of those legally established programs, the Treasury
Department normally borrows the difference.
* * *
Where does the debt ceiling fit into all this? Actually, it doesn’t.
Since Congress already determines revenue and spending, and hence the
amount the Treasury needs to borrow, we shouldn’t need another vote
empowering that borrowing. But for historical reasons any increase in
federal debt must be approved by yet another vote. And now Republicans
in the House are threatening to deny that approval unless President
Obama makes major policy concessions.
It’s crucial to understand three things about this situation. First,
raising the debt ceiling wouldn’t grant the president any new powers;
every dollar he spent would still have to be approved by Congress.
Second, if the debt ceiling isn’t raised, the president will be forced
to break the law, one way or another; either he borrows funds in
defiance of Congress, or he fails to spend money Congress has told him
to spend.
Finally, just consider the vileness of that G.O.P. threat. If we were to
hit the debt ceiling, the U.S. government would end up defaulting on
many of its obligations. This would have disastrous effects on financial
markets, the economy, and our standing in the world. Yet Republicans
are threatening to trigger this disaster unless they get spending cuts
that they weren’t able to enact through normal, Constitutional means.
Republicans go wild at this analogy, but it’s unavoidable. This is
exactly like someone walking into a crowded room, announcing that he has
a bomb strapped to his chest, and threatening to set that bomb off
unless his demands are met.
Which brings us to the coin. (Krugman reiterates his explanation of the $1 trillion dollar platinum coin option).
* * *
But wouldn’t the coin trick be undignified? Yes, it would — but better
to look slightly silly than to let a financial and Constitutional crisis
explode.
Now, the platinum coin may not be the only option. Maybe the president
can simply declare that as he understands the Constitution, his duty to
carry out Congressional mandates on taxes and spending takes priority
over the debt ceiling. Or he might be able to finance government
operations by issuing coupons
that look like debt and act like debt but that, he insists, aren’t debt
and, therefore, don’t count against the ceiling.
Or, best of all, there might be enough sane Republicans that the party will blink and stop making destructive threats.
Unless this last possibility materializes, however, it’s the president’s
duty to do whatever it takes, no matter how offbeat or silly it may
sound, to defuse this hostage situation. Mint that coin!
Or as Greg Sargent writes (h/t for the intro), "I’m sympathetic to both arguments, but the question I would ask is this.
If default really does present itself (I don’t think it’s a real
threat, but let’s assume it is for the sake of argument), then isn’t the
choice simply between being a banana republic (due to GOP hostage
taking) that’s gone into default, and being a banana republic (due to
hostage taking and the coin response) that’s avoided default?"
In either case, Tea-Publican economic terrorists will have rendered America a banana republic.
David Graham at The Atlantic asks, Is the U.S. on the Verge of Becoming a Banana Republic? Brad Plumer snarks at Ezra Klein's Wonkblog, "That’s not fair to banana republics."
UPDATE: Edward Kleinbard, former chief counsel at the Joint Committee on Taxation and a law professor at USC, outlined another option in theNew York Times on Thursday. Once the debt limit is reached, he
argues, the United States shouldn’t acquire more cash by issuing more
debt (as in the 14th Amendment option) or by printing more money (as in
the platinum coin case) but by issuing IOUs to various creditors (as the state of California did during its budget crisis). How to solve the debt ceiling crisis with Monopoly money:
In 2009, the state of California was in the midst of a budget crisis, and to avoid missing payments it started issuing IOUs known as “registered warrants” to various claimants. They eventually issued
450,000 IOUs, collectively worth $2.5 billion, over the course of three
months, after which the scrips became redeemable as the crisis had
ended. The deadline for redemption was Nov. 10, 2010, after which the
warrants became useless.
The scheme worked. It wasn’t exactly popular (one item on the State Controller’s FAQ on the program is “Who can I call to complain about this?”), and big banks such as Bank of America, JPMorgan Chase, Wells Fargo and Citigroup stopped accepting
deposits of the warrants after a couple of weeks, but credit unions
accepted them throughout, and the program kept the state in business for
two months. Once the state secured a $1.5 billion loan from, ironically, JPMorgan Chase, it called in the warrants for redemption and the experiment ended.
Could that plan work for the United States as a whole? That’s less clear. . .
* * *
The market reaction would make or break the plan, and Nancy Vanden
Houten, a bond analyst at Stone & McCarthy Research Associates,
thinks the reaction might not be all that bad. ”I think if bond holders
were persuaded that their principal and interest would be paid, that’s
certainly favorable for the bond market,” she says. “It would also mean
that the Treasury wouldn’t be issuing new debt, as they would still be
operating under the debt limit so they couldn’t issue new debt, so you
would have less supply of securities than you otherwise would, which
would be favorable for interest rates as well.”
But Vanden Houten stressed that it would require a lot of prep time
to work: “For the bond market to react to something like this
favorably, it couldn’t be a last-minute thing. There would have to be
some advance notice.” Overall, she prefers it to the 14th Amendment
option and views it as on a par with the platinum coin, but thinks the
sheer amount of political dysfunction that renders such solutions
necessary might spur ratings agencies to downgrade U.S. debt. It didn’t
matter much when S&P downgraded the U.S. in 2011, but second time
might be a charm.
Political dysfunction caused by Tea-Publican economic terrorists who have rendered America a banana republic.
David Weigel argues at Slate that the platinum coin option may not result in the rating agencies downgrading the U.S. debt. Would #MintTheCoin Bring About Another Downgrade of America's Credit Rating? :
So how would the ratings agency react if the next crisis — set for
the end of February — was averted by the minting of a $1 trillion
platinum coin? I asked John Piecuch, director of communications at
Standard & Poor's. He cautioned that the agency wouldn't go
into too much detail gaming out a hypothetical. But he didn't exactly
ring the bells of doom.
"What our rating speaks to is the ability and willingness to pay the
debt we rate, commercial debt, on time," said Piecuch. "But policy that
improves or detracts from the capacity of the government to pay its debt
is also part of our analysis. Another thing to factor in here: S&P
has five pillars that analysts look at in terms of sovereign ratings.
One of them is the fiscal score, which includes the debt to GDP
trajectory; one is the political score. In terms of the political
aspect, the current acrimony over these issues is already incorporated
into the rating, at the AA+ level."
In other words, the ratings agency isn't particularly worried about
how the U.S. avoids default. It's worried about the country's ability to
pay the bills. An effective end-run around the crisis, one that would
pay the bills, might do the trick.
Weigel ignores the "political score" for the political dysfunction caused by Tea-Publican economic terrorists that the ratings agencies focused on heavily the last time the U.S. debt was downgraded.
