Friday, January 4, 2013

The Platinum Coin is a Terrible Idea

Now that we've averted the Fiscal Cliff, the country's next looming catastrophe is the "Debt Ceiling." This is the law that limits the amount the federal government can borrow. In about two months, we will hit the ceiling unless Congress acts to raise it, in which case the President will have to stop paying people the government owes money to. This would be calamitous. Republicans says they will demand spending cuts in exchange for any rise in the Debt Ceiling; Obama says he won't negotiate on this issue, because Congress needs simply to grant him the ministerial authority to create the debt necessary to pay for the spending that Congress has already appropriated.

One clever idea that's been going around is that the President can short-circuit this whole crisis by having the Secretary of the Treasury order the minting a platinum coin with a $1 trillion face value. That coin could then be deposited with the Federal Reserve, which would credit the Treasury's account with the $1 trillion, which the President could use to pay the country's creditors.

This method of using coinage to raise revenue is called coin seigniorageThe Treasury's ability to mint coins is generally circumscribed by the fact that only certain denominations and types of coin are allowed. Specifically, 31 U.S.C. 5112 states:

The Secretary of the Treasury may mint and issue only the following coins: 
(1) a dollar coin that is 1.043 inches in diameter.
(2) a half dollar coin that is 1.205 inches in diameter and weighs 11.34 grams. 
(3) a quarter dollar coin that is 0.955 inch in diameter and weighs 5.67 grams. 
(4) a dime coin that is 0.705 inch in diameter and weighs 2.268 grams. 
(5) a 5-cent coin that is 0.835 inch in diameter and weighs 5 grams. 
(6) except as provided under subsection (c) of this section, a one-cent coin that is 0.75 inch in diameter and weighs 3.11 grams. 
(7) A fifty dollar gold coin that is 32.7 millimeters in diameter, weighs 33.931 grams, and contains one troy ounce of fine gold. 
(8) A twenty-five dollar gold coin that is 27.0 millimeters in diameter, weighs 16.966 grams, and contains one-half troy ounce of fine gold. 
(9) A ten dollar gold coin that is 22.0 millimeters in diameter, weighs 8.483 grams, and contains one-fourth troy ounce of fine gold. 
(10) A five dollar gold coin that is 16.5 millimeters in diameter, weighs 3.393 grams, and contains one-tenth troy ounce of fine gold. 
(11) A $50 gold coin that is of an appropriate size and thickness, as determined by the Secretary, weighs 1 ounce, and contains 99.99 percent pure gold. 
(12) A $25 coin of an appropriate size and thickness, as determined by the Secretary, that weighs 1 troy ounce and contains .9995 fine palladium.
You'll notice that there's no mention of platinum among the permitted coins. And it's hard to imagine that the U.S. could mint enough $25 or $50 gold or palladium coins to generate the revenue needed to avoid the Debt Ceiling.

But there is a loophole. Subsection (k) of this statute, which was added in 1996, reads:
The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary's discretion, may prescribe from time to time.
Based on this, many smart people (such as Josh Barro and Matthew Yglesias) whose writing and ideas I generally respect are saying that President Obama should order Timothy Geithner (the Treasury Secretary) to mint and issue one or two $1 trillion platinum coins to avoid the Debt Ceiling. Note: they aren't saying just that this is possible, they are saying that it is advisable. I think that's terribly mistaken.

First, I think the minting of a $1 trillion coin would be a clear abuse of discretion by the Secretary of the Treasury, and therefore illegal. It is true that the statute says he can mint platinum coins "in accordance with such . . . denominations . . . as the Secretary, in the Secretary's discretion, may prescribe," but there's no indication that this discretion is unlimited. Indeed, I think the most plausible way to read the statute as a whole is that the Secretary may mint platinum coins in any of the denominations otherwise authorized—specifically those denominations authorized for other precious metals. This is a straightforward application of what Justice Scalia calls the "whole-text canon"—
In ascertaining the plain meaning of the statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole.
K-Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988) (Kennedy, J.).

This interpretation is buttressed by the fact that the contrary interpretation, which treats the text in pure isolation to allow any denomination of platinum coin whatsoever, leads to clearly absurd results. Namely, it would give the Treasury unprecedented (and unremarked upon) authority to fund the entire government through platinum coins, obviating the need to tax or borrow at all.  That is an absurd result at odds with the plain meaning of the statute taken as a whole. It is also incontestable that such a result was not intended by anyone, ever. The provision was intended simply to appease some coin collectors who wanted the U.S. Mint to issue some platinum commemorative coins, and make a little money for the government as a result.

Second, even if one is convinced that it would not be an abuse of discretion for the Secretary of the Treasury to mint a $1 trillion coin, it would certainly be bad politics. For starters, there is the stone-cold fact that such an action would be an obvious bastardization of the statute. There is no plausible argument to the contrary. Indeed, mark my words: if Obama ever approvingly utters the words "platinum coin" in reference to the Debt Ceiling debate, it will mark the unofficial end of his presidency. He would be mercilessly—and fairly—attacked for resorting to a dictatorial gimmick to evade the Debt Ceiling law. It would confirm every independent's worst fears about him (that he's a secret radical) and would be a political disaster that would put FDR's court-packing fiasco to shame. To put it in language Joe Biden can understand, it would literally be the stupidest thing any president has ever done.

Here's why. Proponents of the Platinum Coin idea do not pretend that it is anything other than a gimmick. But they assert that the Debt Ceiling is just an artificial gimmick too, and we have to fight fire with fire (or stupid with stupid, or crazy with crazy). There are two problems with this approach: (1) the average citizen won't think the Debt Ceiling is a gimmick, but will immediately recognize the Platinum Coin as an illegitimate gimmick; and (2) President Obama himself voted against a Debt Ceiling increase when he was in the Senate, so he has no personal credibility to argue that the Debt Ceiling is just a gimmick.

In the abstract, your average citizen believes that the federal government is a leviathan that obviously needs to tighten its belt—just like families and business have to. This analogy of the government to a business or a family is a very seductive and intuitive one. The fact that it's very wrong does not rob it of its power. This idea is why Republicans want to cut federal spending, and why so many of their constituents (even many Democrats) agree in principle. (Of course, when things get into specifics—when it comes time to decide what spending to cut—things get a lot hairier.)

So when Republicans say, invoking the "Boehner Rule," that they'll agree to raise the Debt Ceiling as long as the President agrees to some spending cuts, this does not sound like a crazy idea (even if it actually is). People may ultimately say, "You know what, I don't actually want any of these specific programs cut—the Democrats are right that spending levels are about right"—but they definitely won't say, "The idea of cutting government spending is an obvious and ridiculous gimmick, and these Republicans are fools for suggesting such a thing."

If, however, the President were to float the Platinum Coin idea, that is exactly what people would say about him. They would say, or think: "That is about the stupidest thing I've ever heard. We have a one-trillion dollar deficit, and instead of working to cut some fat off the government, Obama is going just go ahead and mint a one-trillion dollar coin?!"

Even worse,  Obama would have very limited ability to argue that he is just using the loophole to get around a pointless formality because, as mentioned above, Obama didn't treat the Debt Ceiling as a pointless formality when he was in Congress. Indeed, when President Bush wanted to raise the Debt Ceiling to allow funding of his various foreign wars, Senator Obama (along with every other Democrat in the Senate) voted against it. He would perhaps say that was just a symbolic vote, and he has disavowed it, but still—he would not have a leg to stand on in the public debate.

So, to sum up: the Platinum Coin is illegal and ill-advised. Thankfully, I am quite certain that President Obama is too savvy to even consider taking the advice of the too-clever-by-half commentators who are urging him to #mintthecoin. What he should do is fight this battle from the high ground and on the merits.


One good counter-argument to my "most plausible interpretation" argument above is that the mint has been issuing a $100 platinum coin (see picture, above) since 1997, and the highest specifically authorized denomination is $50. Still, the interpretative doctrine of absurdity applies with substantial force here. Finally, this is a question that in the end would never be considered by courts of law—only courts of public opinion, who would rightly and predictably condemn the minting of such a ridiculous coin.

1 comment:

  1. President Obama should suggest that our military budget return to Clinton era spending. That would cut up to 250 billion a year from the debt without throwing oldsters into the street. An end to the drug war would free up about another 50 billion a year. The GOP wants the elderly and poor to pay for their empire building war machine...with their blood in many cases.


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