Coin of the Realm

By Clarice Feldman


Creative accounting can land you in jail if you work in a business, but when it comes to Washington, it can be regarded as genius.   

The debt ceiling game of chicken played out this week, and ground on into the weekend, as the House passed a bill and the Senate responded.  The President (who did nothing but fan partisan feelings) outrageously will claim credit for the compromise legislation that will result, will sign it, and the crisis will have passed.

What the final law will say is anyone's guess. Surely, though it won't look like the White House plan because there wasn't any.  And it is likely to be more representative of the public's demand for decreased federal spending and no tax increases than it would have been had the 2010 revolt not taken root.

Unfortunately for Obama and big spenders everywhere, it won't likely be Jack Belkin's plan either.  I say "unfortunately" because his plan opens up so many creative government accounting possibilities.  You might not have heard of Belkin, a professor of constitutional law at Yale law school, the scene of some of the most risible and original legal thinking these days.  Tom Maguire explains Belkin's  latest offering, certainly a top nominee in any "What's the Dumbest Thing A Constitutional Law Professor Said This Year?" contest.

[The "T" Coin For The Tea Party

Demonstrating yet again that there is nothing as powerful as an idea whose time is coming, we are now swept by a wave of posts celebrating the Trillion Dollar coin as a solution to our debt ceiling woes.  There's change we can believe in!

The notion has been smoldering since January but respected Constitutional scholar Jack Balkin broke through to Memeorandum with this CNN column:

We are having a debt-ceiling crisis because Congress has given the president contradictory commands; it has ordered the president to spend money, and it has forbidden him to borrow enough money to obey its orders.

Are there other ways for the president to raise money besides borrowing?

Sovereign governments such as the United States can print new money. However, there's a statutory limit to the amount of paper currency that can be in circulation at any one time.

Ironically, there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.

Matt Yglesias scratches his head, gulps, checks the statutes (1, 2), and concludes that this might work.  Brad DeLong keeps his eye on the Big Picture (or anyway,the big screen):

I suggest that[ Treasury Secretary Geithner] immediately mint 50 ten-pound liberty-head coins, each of them denominated at $100 billion, and temporarily store them in the Treasury Secretary's office. Then the Treasury Secretary can take them up one at a time to the Federal Reserve Bank of New York in a special armored train as required.

Think how much money the federal government could make from the movie rights alone...

[snip]

I was saying last night (before the crowd hooted me down) that if the Treasury Secretary is staring at a dwindling cash balance and has to choose between not paying Medicaid, not paying the military, not paying the Veterans Administration, not paying the Coast Guard, not paying the Border Patrol, not paying food inspectors, not paying the NIH, or issuing a $50 Billion coin, well, none of the choices are appealing, but the special coin might not be the most unappealing. 

As a bonus wrinkle, it would be worth knowing just how quickly this ploy would be reported -- the Mint reports annually, but I presume Treasury and Fed balances are reported on a more timely basis.  That said, if Geithner could slip a few high value coins into the mix in early August and only report it in early September on some Treasury report covering August activity, well, the debt deal would probably have been wrapped up by then.

FWIW, net seignorage profit in 2010 was a mere $388 million as reported bythe Mint, so we are talking a notable change in practice here.

DO REMEMBER:  The idea that the US might simply spin the printing presses to satisfy foreign bondholders is hardly news, as this Eerily Prescient post from a year ago illustrates.  Striking coins updates the metaphor.

LEFT UNADDRESSED:  How might the coins be presented to the Fed?  Should Tim Geithner dress up as a stage magician and pull the magic coin from an unsuspecting taxpayer's ear?  Or maybe the coins can be delivered by Rodeo Clowns.  Tough call, given the seriousness of the enterprise.

Obviously, the idea of just minting high denomination coinage to get us out of our economic trap would have broad public appeal. The entitlement Santa sleigh would not be short weighted and we could keep more of our income.  So much more appealing than yammering at each other in an effort to bring spending and taxing under control on one side and on the other to keep the gravy train rolling while getting "shared sacrifices" from all those billionaire households earning over $250,000 per year.

In any event it is not clear whether Congress and the White House can agree on any bill before the August 2 designated doomsday. In fact, it is increasingly likely that August 2 might not be the very last day they must reach agreement before we face the possibility of defaulting on some obligations.

Iowahawk has sketched out in some detail the horrible prospects we face if  doomsday passes with no resolution. Here are just a few of his predictions:

Beltway policy experts begin living by own wits; after 45 minutes there are no survivors.

Roving bands of outlaws stalk our streets, selling incandescent bulbs to vulnerable children.

Unregulated mohair prices at the whim of unscrupulous mohair speculators.

NPR news segments no longer buffered by soothing zither interludes.

Breadlines teeming with jobless Outreach Coordinators, Diversity Liaisons, and Sustainability Facilitators.

Cowboy poetry utterly lacking in metre.

General Motors unfairly forced to build cars that people want, for a profit.

Chaos reigns at Goldman Sachs, who no longer knows who to bribe with political donations.

So as the sun will set tonight, July 31, the last business day before Maybe Doomsday Maybe Not, we don't know where we are, we don't know where we are going, but as long as there are constitutional law professors  we'll never be short of laughter, the true coin of every realm worth living in.