Congress managed to avert a recurring crisis last Thursday, as it passed a short-term appropriations bill that will keep the lights on in the hallowed halls of Washington through December 3rd.
That leaves members with the rest of what Hayes Brown calls “the to-do list from hell” — at the top of which is what to do about the debt ceiling.
By Dave Allen for Discount Gold & Silver
Congress managed to avert a recurring crisis last Thursday, as it passed a short-term appropriations bill that will keep the lights on in the hallowed halls of Washington through December 3rd.
That leaves members with the rest of what Hayes Brown calls “the to-do list from hell” — at the top of which is what to do about the debt ceiling.
Of all the potential catastrophes in the making, this one may be the most arbitrary and self-imposed.
Almost nobody likes the debt ceiling. It’s burdensome, it’s a political nightmare, and it has been raised or suspended every time it has been a problem since it was set into place in 1939.
Despite that, for the third time in ten years, we’re facing a situation where, if it isn’t lifted, the entire economy could implode for no good reason.
Hayes opines that “faced with a problem this asinine, the country may require solution that is truly absurd.”
What Is the Debt Ceiling Anyway?
As a reminder, the debt ceiling is the legal cap on how much debt the federal government can incur. Generally speaking, approaching this limit has consequences. Some view this as good, others not so much.
Practically speaking, it means the Treasury can’t borrow money to pay for all the things that Congress has appropriated funding for — most notably, paying interest on government bonds previously issued.
Treasury Secretary Janet Yellen has warned a number of times recently that she’s going to run out of “extraordinary measures” (i.e., mainly accounting gimmicks) to stave off unprecedented disaster.
Democrats wanted to use the continuing resolution that it passed on Thursday to lift the debt ceiling, but Senate Minority Leader Mitch McConnell said no. That leaves 13 days to figure out a solution.
Faced with a problem this ridiculous, the country may require a ridiculous solution in turn.
A decided majority of the American people believe the best choice is to get rid of the debt ceiling entirely, a move that Yellen endorses (her boss, the Prez, hasn’t personally weighed in).
Or, at the very least, Congress should restore the so-called Gephardt Rule(named after former House Majority Leader Dick Gephardt of Missouri).
Dick’s rule held that when a budget passes Congress, “it shall be deemed to have authorized whatever borrowing is implied by that budget.”
That position, however, that doesn't have even near universal support. Our own Melody Cedarstrom, for one, strongly believes that the debt ceiling serves an important purpose: giving Congress another opportunity to debate spending and taxing policies in general and the deficit and debt in particular.
With over $28 trillion in gross national debt, Melody's thinking shouldn't be lost on policymakers in Washington and on the media who shape a lot of the debate.
What Can Congress Do?
The end of the debt ceiling or the return of Dick's Rule both seem unlikely in the near term, which leaves three immediate options:
#1: Congress increases the debt ceiling. That would be the most obvious answer, except Senate Republicans have promised not to provide the 10 votes to avoid a filibuster.
Under budget reconciliation, it’s possible to raise the debt ceiling with just Democrats’ votes — but doing so would be time consuming (i.e., political complicated), and it could wind up blowing up the president’s agenda.
McConnell knows both of these things, which is why he’s holding his ground while also insisting that a default won’t happen.
#2: Biden invokes the 14th Amendment, which holds that the “validity of the public debt of the United States, authorized by law ... shall not be questioned.”
Under this scenario, the Treasury would borrow more money despite the debt ceiling because the constitution says the public debt has to be paid one way or another.
The problem with that, Hayes says, “is it’s a really bad look to deliberately break the law, especially when it comes to Congress’ power of the purse. Presidents shouldn’t be able to unilaterally set spending policy because, well, that’s basically a monarchy.”
Since a constitutional crisis is virtually nobody’s idea of a good time (except for maybe constitutional scholars working on the meter to tell us why such a crisis isn’t a good idea), that leads us to option three.
Hayes calls it “absolutely the most bonkers of them all — but the one most likely to succeed if push comes to shove:
#3. Treasury mints one or more $1 trillion platinum coins. Thanks to a bizarre loophole in the nation’s coinage laws, the Treasury Secretary is permitted to mint platinum coins in literally any denomination they want.
Historically, those laws have been used to produce commemorative coins that are worth more than they cost the U.S. Mint to produce, netting a small profit for the government from coin investors.
But in 2011 and 2013, Obama administration officials started wondering whether the laws could be used to solve the debt ceiling dilemma.
Here’s how pundits say it would work, and it seems fairly straightforward: Yellen orders the U.S. Mint to strike one or more platinum bullion coins, each worth $1 trillion.
She would then purchase $1, $2 trillion or more worth of debt from the Fed and retire that debt, thus creating breathing room under the debt ceiling. That’s according to Bloomberg News' Joe Weisenthal and a major debt coin advocate.
When the Obama administration considered the idea in 2013, it rejected it as both legally shaky and imprudent.
But people like Harvard law professor Laurence Tribe and former U.S Mint Director Philip Diehl say the platinum coin option totally could work legally.
So far, the Biden administration has yet to really acknowledge that anything other than Congress’ raising the ceiling will happen — but it could be time for the White House to start considering it.
Why the Coin is a Bad Idea
There are three main arguments against the platinum coin today. The first is that it would ignite a new round of inflation when households can hardly afford it. But that’s unlikely, as the coin would never enter circulation.
The second is that there’s just not enough time to figure out the logistics of manufacturing the coin—even if there’s only one, two or three of them—and getting through any legal challenges in time to avoid a default.
Instead, Hayes says, the biggest argument against it is that “it’s a really weird idea that lays bare just how much of our financial system is arbitrary and capricious. Because it is!”
The risk of default in 2011 and 2013 was triggered by Republican demands that Obama slash spending broadly or defund all of Obamacare.
This time around, the White House and congressional Ds refused to negotiate at all over the debt ceiling rise. And that’s fine with the Rs. It has no real belief that it will get Biden to give up his economic agenda to win its votes.
Instead, it’s content to let the Ds hang in the balance and then place the blame on their shoulders if there’s a default (there won’t be).
That’s a whole new level of cynicism, and that’s saying something, because there’s been a lot of that — on both sides of the aisle — for a long time.
You can already picture the historic photo opp — Janet Yellen handing the newly-minted coin to Fed chair Jerome Powell, with all the major Wall Street characters cheering ironically in the background.
(Editor’s Note: I wonder if instead the ceremony would have an NFL official tossing the coin in the air.
On one side are the rich and famous Wall Streeters in football uniforms menacingly facing the other side, a struggling family of five in their everyday street clothes.
Heads, Wall Streeters win. Tails, Main Streeters lose.)
Again, after the Fed is given the Debt Coin, it would credit Treasury's account with $1 trillion that would not count toward the national debt.
Look, the debt limit is not a sacred principle in the Constitution. It’s simply a quirk in the law that was intended to make it easier for the government to borrow to pay for World War I.
However you may feel about Congress’ spending and taxation, you have to agree with Hayes that it’s “absurd that it now leads to these high-tension showdowns” far too often.
As disruptive as a government shutdown would have been, failing to increase the debt ceiling — to pay for spending previously approved — will be another matter entirely.
It means the government will not be able to pay its bills, including military pay, Social Security checks and interest on government bonds.
This has turned into a big game of chicken. Biden wants McConnell and the Rs to take some responsibility for spending they approved during the last year of the Trump presidency.
McConnell wants Biden and the Ds to pay a big price to get him and the Rs on board with increasing the debt ceiling.
Pulling a trillion-dollar platinum coin or two out of his back pocket certainly isn’t an ideal outcome for Biden.
But who among us can say it’s not better than letting tens of millions of people go without Social Security or paychecks or wrecking an already struggling economy on the rebound?
The Debt Ceiling Is a Relic of the Past
The debt ceiling no longer serves a useful fiscal purpose. It's just an anachronistic, political stick that risks triggering an unconstitutional and catastrophic default.
On the one hand, the trillion-dollar coin would effectively take that stick out of politicians’ hands, rendering them less capable, in theory, of causing a disaster through inaction alone.
On the other hand, the trillion-dollar coin would allow the government to spend money without borrowing it or raising it via taxes — i.e., with little to no consequence.
That could be a dangerous precedent to set. What would it do to the U.S. dollar, interest rates, the bond market and, in turn, equities? Who knows?
Besides, even if it's legal, no one knows if it's even possible to mint a platinum coin between now and October 18th, when the U.S. risks going into default. Hopefully, over the next two weeks, we won’t find out.
Just as desperate times sometime yield desperate measures — with mixed results, uncertainty and divisiveness breed divisive solutions that often do little more than ramp up uncertainty with unintended consequences.
If we want to avoid untried and untested ideas like #MintTheCoin, especially in these volatile times, it’s time for Congress to do away with the debt ceiling — via a resolution that requires the signature of the president.
Future Congresses will be less likely to teeter with our nation’s financial security in this political fashion if abolition of the debt ceiling were to become the law of the land, especially with a future president of the opposite party.
Instead, let our elected representatives debate the pros and cons of spending and revenue proposals on their merits, with the Gephardt Rule back in full force.
And let the resulting deficits — or, God forbid, surpluses — fall where they may!
Then, we the people — voters with a rare common interest — must find our way to these three critical reforms to stabilize our constitutional republic, preferably through bipartisan-formulated constitutional amendments:
Only with those reforms in hand can we start to regain any confidence that Congress will forge policies that promote — or at least resembles — the long-term public good rather than their short-term interests (i.e., reelection).
Otherwise, don't be surprised if at some point, this or some future administration brings on a trillion-dollar platinum coin, finds an NFL referee (or retired to flip it, and goes, Let’s see what happens!