Each day that passes without enactment of legislation raising or suspending the debt ceiling brings the United States and thus the global economy closer to disaster. Lately, we have begun to suspect that disaster is, if not exactly the goal of the Republican House majority in this standoff, then at least a beneficial side effect from their point of view. On one hand, the bill that the House recently passed contains such deep cuts in non-defense discretionary spending as a condition of raising the debt ceiling that the measure would substantially slow economic growth and increase unemployment. On the other hand, should the Democratic Senate and President Biden reject Speaker McCarthy’s toxic proposal (as they have already said they will), the U.S. will face the prospect of a first-ever inability to pay its bills and lasting economic damage. Seen from the narrow perspective of politics, either option could benefit Republicans in November 2024, because voters tend to blame the incumbent President’s party for tough economic times, regardless of the actual cause.
Is that assessment too cynical? Perhaps. Maybe most House Republicans are merely very confused about how the economy works, blinded by their ideology. It hardly matters. Whether the Republican hostage-takers are knaves or fools, if President Biden fails to prevail in the ongoing and ever-more-dangerous game of chicken, he will need to take steps to mitigate the damage.
In the years since Republicans in Congress began using the debt ceiling as leverage during the Obama administration, we have argued that: (a) congressional failure to repeal, raise, or suspend it would present the president with a “trilemma” in which any path he chooses—raise taxes, stiff people and firms legally entitled to government payments, or borrow in excess of the debt ceiling—would unconstitutionally usurp congressional power; and (b) issuing bonds beyond the debt ceiling would be the “least unconstitutional” of these options because it would minimize the scope of legislative-style discretion the President would unilaterally exercise and, by contrast with the stiffing option, comply with Section 4 of the Fourteenth Amendment.
Because so many people conflate different constitutional matters in this context, we should emphasize here that our core argument in no way relies on the Fourteenth Amendment. The trilemma would exist even if Section 4 had never been added to the Constitution, and that provision (as important as it is) is simply not part of our analysis in concluding that the President’s constitutional duty is to pay the nation’s bills in full and on time, even if House Republicans force him to do so by exceeding the debt ceiling.
Did We Improperly Reject the Platinum Coin Alternative?
But what if there is a perfectly legal way for the government to pay its bills without violating the debt ceiling? Various commentators have proposed that a loophole in a federal statute allows the government to mint platinum coins worth trillions of dollars, which could be deposited with the Federal Reserve and thereby enable the Treasury Department to pay its bills without violating the debt ceiling. Surely that approach would be better if it were legal, right?
We are not sure. We would certainly be delighted if the Republicans’ dangerous strategy could be defused in a way that did not generate a constitutional (and economic) crisis. No sane person could affirmatively want to pass up a legal alternative that would avert the disaster that Republicans have threatened to ignite. It is possible, however, that the sheer cartoonishness of the platinum-coin gambit would rattle the global financial markets to a greater extent than issuing debt-ceiling-violating bonds. Thus, the coin gambit could lead to a greater disaster than any of the other alternatives, even if it were (as its proponents claim repeatedly) “perfectly legal.” But as we explained in a recent column, there is no platinum-coin loophole.
Were we wrong about that? Mixed in among the various “likes,” “retweets,” and other responses to our column, the social media slurry included a chorus of accusations that we were “lying,” acting in “bad faith,” or, slightly more charitably, incompetent researchers. These insults echo one pro-Coin writer’s assertion early this year that “a lot of dull-witted pundits are going to say [that you] can’t just mint a magic coin, it’s a total gimmick, this is crazy talk.” Others can assess how sharp our wits might be, but this is not a matter of imagination or nerve but whether the platinum coin gambit is legal and what it would do to the economy.
In any event, we are honestly puzzled by the idea that we would have any reason to shade our analysis against a course of action that would stymie the House Republicans’ dangerous strategy. If the Biden administration caves now, that will only guarantee that hostage-taking will happen again and again, as Republicans will surely learn from any compromise by the President now that they can shorten the time between debt ceiling crises in the future, amping up their extreme demands with each repetition of a waking nightmare.
We thus have every reason to want to make this all go away permanently, which is why we have called for repeal of the debt ceiling statute (which, by the way, is neither necessary nor sufficient to limit the national debt). We reject the coin gambit not because we do not want it to work, but because it will not work, either as a matter of law or as a means of mitigating economic calamity. Because we cheerily acknowledge that we are capable of erring, however, we went back and double-checked our work. As we explain in an accompanying essay on Dorf on Law, we got all of the technical points right, while our critics got nearly everything wrong.
Details aside, we emphatically reject the claim that we would ever consciously try to deceive our readers. To be sure, it is possible that in writing about the platinum coin gimmick, we were subconsciously influenced by our priors, but we are completely upfront about those priors: we want the President, faced with a binding debt ceiling, to mitigate the damage as much as possible while minimizing the usurpation of policy-making authority from Congress. Our analysis of policy and law leads us to the conclusion that issuing bonds in violation of the debt ceiling, not a multi-trillion-dollar platinum coin, is the least bad of a set of bad options.
The Coin as Modern Monetary Theory’s Trojan Horse
What about the priors of the platinum coin’s proponents? At various times, people with a range of views have promoted the platinum coin idea, but so far as we can tell from clicking on the social media profiles of the most outraged critics of our prior coin-focused column, nearly all of this batch are adherents of modern monetary theory (MMT), a highly unorthodox macroeconomic view.
To oversimplify somewhat, MMT posits that governments that control their own currency (as the U.S. government does) need not and generally should not raise revenue through taxing and borrowing but should simply create money to deposit with the central bank. MMT proponents acknowledge that this approach can be inflationary but believe that taxation to reduce the public’s buying capacity can be selectively deployed to contain inflation. Although we share the progressive values of most MMT proponents and agree with some of their criticisms of conventional views of public finance as overly concerned about deficit spending, we do not subscribe to MMT.
That is not our current point, however. We acknowledge that Congress could, if it so chose, adopt MMT policies. Yet according to our social media critics, Congress already did so—in an obscure provision of law authorizing the minting of platinum coins!
The breadth of that astonishing claim becomes apparent when one realizes that nothing in the critics’ argument is confined to a debt-ceiling crisis. If they are correct, then any presidential administration could decide to forbear collecting taxes (pursuant to its prosecutorial discretion), cease borrowing (except to the extent it deems doing so useful for creating Treasury bills as instruments of storing and exchanging wealth), and fund the federal government indefinitely by stamping “100 trillion dollars” (or any arbitrarily large number) on a piece of platinum.
We suspect that, just as Speaker McCarthy and House Republicans may regard disastrous economic fallout from a debt-ceiling crisis as a benefit rather than a cost of their hostage-taking, so the MMT adherents may regard the incredible power of their magic coin to remake public finance to their liking as a feature, not a bug.
Mainstream Proponents of Platinum Coins
The extreme MMT-promoting implications of assuming the legality of arbitrarily-high-value platinum coins should give pause to coin promoters who subscribe to more mainstream economic views. Take Paul Krugman, who is a long-time critic (and target) of the MMT crowd and also an enthusiast for the platinum coin gambit. Krugman has no expertise in law and thus seems to have simply accepted the claim that the platinum-coin loophole exists because some prominent legal scholars had previously promoted it.
That lack of legal training is evident in Krugman’s efforts to stave off the MMT advocates among his platinum fellow travelers. In a 2020 Twitter thread, he responded to the MMT claim that platinum coins could be “an actual funding source” for federal programs with the contention that it is only “an accounting maneuver to avoid blackmail.” Yet on this point Krugman is wrong and his MMT antagonists are correct. If trillion-dollar coins are a legal means of paying the government’s bills notwithstanding the debt ceiling, they are a legal means of paying the government’s bills, full stop. Nothing in the “loophole” argument has anything to do with the debt ceiling.
But of course, the loophole argument is wrong, for multiple reasons, including one given by Krugman himself. He recently wrote that in response to the minting and depositing of a $3 trillion platinum coin, “[t]he Fed would offset any effect on the money supply by selling off some of its large portfolio of U.S. government bonds, so this would in effect simply be borrowing through the back door.” Krugman said roughly the same thing in that 2020 Twitter thread, where he acknowledged that “for all practical purposes,” the coin gambit “would be borrowing.” Yet he also claimed that this de facto borrowing “wouldn’t raise the official size of federal debt, so it wouldn’t run up against the debt ceiling.”
Why wouldn’t borrowing via a platinum coin count against the debt ceiling? Krugman did not say—and for good reason. It very likely would. The debt ceiling statute calculates debt as the sum of the face value of bonds—which, as Krugman rightly assumes, would not increase if the Fed were to sell pre-existing bonds—plus “obligations whose principal and interest are guaranteed by the United States Government.” As one of us (Buchanan) explained over a decade ago, both the textual context and purposive statutory interpretation lead to the conclusion that the platinum coin gimmick creates an “obligation” in the amount of the coin’s face value. Thus, it does count against the debt ceiling after all.
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As we wrote above, we sympathize with Krugman and others who promote the platinum coin as a magic loophole that denies GOP hostage takers the rotten fruit of their poisonous tactics. If we thought it were plausibly lawful and would not displace better options, we might support it. But even if we are wrong about all the other reasons why the coin is unlawful, we are certain we are right about one reason that by itself suffices to show that the loophole does not exist. As we explained above, if trillion-dollar platinum coins are legal to avoid a debt-ceiling crisis, they are always legal as a means of substituting MMT for the entire apparatus of public finance. That absurd result shows that the coin’s proponents are badly misreading federal law.
In an important 2001 administrative law case that was unanimous in its result, the Supreme Court said that Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions—it does not, one might say, hide elephants in mouseholes.” The platinum-coin enthusiasts think that when Congress delegated power to the mint to decide how to denominate the face value of platinum coins to sell to collectors and investors, it hid an ocean in a teacup.