Senate Republicans’ cynical decision to provide zero votes to increase the debt ceiling is an affront to common sense, decency, and the rule of law. Because I wrote about all of those issues barely more than a week ago, however, I will focus today on what might happen if the Republicans’ strategy blows up in everyone’s faces.
The politics of this are crystal clear but nauseating. The Republicans have decided to try to force the Democrats into nearly insuperable procedural knots, even as they are counting on the Democrats eventually to save the economy by increasing the debt ceiling—at which point Republicans will attack Democrats for doing exactly what had to be done. But do not just take my word of it. This is what Senate Minority Leader Mitch McConnell has openly and shamelessly (even gleefully) admitted.
But what if this all goes horribly wrong? What would happen if President Biden were on some fateful day to find himself with insufficient funds to pay the government’s bills, with Democrats having failed to thread the legislative needle to make it all work out?
Some commentators have lately begun to sing the praises of the so-called Big Coin option, by which the Treasury would mint a platinum coin and designate its value at some arbitrarily high number (with one trillion dollars being the figure mentioned in most discussions), at which point the government could go back to paying its bills.
Too good to be true? Actually, not exactly. Although the Big Coin gambit would not in fact be legal, that does not differentiate it from any other option that would be available if things were to come to a head. The reality is, however, that there are better options available, both economically and politically, than playing with big coins. We do not need to go through the cartoonish process of minting a platinum deus ex machina to solve this utterly contrived problem.
This Is All Familiar, Depressing Territory: The Debt Ceiling Is a Legal Abomination
I should warn readers up front that there is truly nothing new to be said about any of these issues. Even regarding the Big Coin gambit more narrowly, it is all old news. Indeed, what I wrote here on Verdict almost exactly eight years ago is still true, which is that the Federal Reserve (the Fed) can solve this problem through less mockable measures than accepting the deposit of a trillion-dollar coin.
Still, please allow me to try here to summarize the key points in the context of the current political mess, which exists entirely because the Republicans’ outright nihilism is even more extreme than their worst efforts during the Obama years.
We must start by reminding ourselves that the debt ceiling statute makes no sense. It does not put a ceiling on debt, and its only possible real-world impact is to generate a political crisis that has nothing to do with any underlying budgetary or economic reality. It continues to exist purely because Republicans are addicted to pandering about federal debt. It is that simple.
What is not simple is what to do if the debt ceiling becomes binding. What I call the drop-dead date arrives when the Treasury Department has exhausted all legal ways in which to free up money to pay the nation’s bills as they come due. That date is now less than two weeks away, October 18, according to the Treasury’s accountants.
I, along with my fellow Verdict columnist Michael Dorf, have argued over the years that the debt ceiling is unconstitutional, for a variety of reasons, and thus that the best course would be for the Treasury to announce well in advance of any drop-dead date that the Administration cannot and will not obey the debt ceiling statute if doing so would force the government to violate the law by failing to pay our bills in full and on time.
Even so, both the Obama and Biden White Houses have refused to take that route, for reasons that I well understand but that are dangerously short-sighted. If former President Obama had confronted the constitutional reality right away, after all, we would not now be staring down the barrel of yet another loaded debt ceiling gun. Even so, one can hardly blame a president for not wanting to give his opponents weeks of advance notice that he “is going to ignore the law.”
I have no inside contacts with the Biden team, but I can easily explain their public rejection of all suggestions to work around the debt ceiling if it ever becomes necessary to do so. This is obviously a matter of trying to force Congress to fix this mess before we reach the drop-dead date. Telling everyone in advance that Biden is willing to fix the problem by some other means all but guarantees that Congress will say, “Oh, good, we don’t have to handle this after all.”
This logic means that Biden cannot say now that he would follow my advice by ordering the Treasury to treat the drop-dead date like any other Monday, with bond sales proceeding as usual. Similarly, it means that he cannot announce now that he will authorize the minting of a high-denomination platinum coin. Again, I get it. What will happen, however, if Congress genuinely fails to act, and Biden must then choose from nothing but bad choices?
Déjà vu: The Big Coin Gambit is Back, Baby!
Back in 2013, famed economist Paul Krugman used his space on the op-ed page of The New York Times to argue repeatedly that Obama should embrace the Big Coin option. Unsurprisingly, Krugman is back again, making the same point (albeit with a welcome reduction in his snark level) in a column late last week. Similarly, someone named Zachary D. Carter published a piece in yesterday’s Washington Post making essentially the same argument.
Krugman and Carter make decent points, and they seem to be coming from a good place, but they miss some key considerations. By contrast, we are also seeing a certain amount of outright hackery from other sources, which muddies up the story. For example, a non-opinion item in Axios managed to get every key point wrong, starting with a classic example of what is now known as bothsidesism, saying that the looming crisis exists “thanks to Congressional intransigence on both sides of the aisle.” And Republicans everywhere were thankful for yet another free pass from the Beltway media.
Even on trivial matters, the writer is simply wrong again and again. For example, he describes Krugman as a “recent convert” to the Big Coin gambit, a factual claim that is easily disproved. And he somehow came up with this: “Even if it’s legally sound, no one knows whether it’s physically possible to mint a platinum coin between now and Oct. 18.” What?! That could be done in an hour. The whole point of the gambit is that minting a new coin would be quick and easy, especially because the coin need not even have anything stamped into it. The Treasury could just as well toss a lump of metal on a table with “platinum” written on it in crayon, with a piece of paper next to it reading: “This is our new trillion-dollar coin.”
But those silly errors are nothing compared to the deeper analytical problems. Even the more sober advocates of the Big Coin option simply presume that the gambit is “perfectly legal,” because it is based on exploiting a gap in the Coinage Act (a gap supposedly created by Congress’s authorization to mint platinum coins for commemorative purposes but not putting a dollar limit on their denominations). But as Professor Dorf explained early in 2013, that is simply not how administrative law works in the United States. Indeed, the supposed loophole would fail even the most basic Supreme Court guidance on limits to executive branch discretion in interpreting statutes.
The Big Coin gambit, then, would be no more legal than my preferred choice, which (again) is to have the Treasury continue to issue normal debt in normal ways. But is it not true that the president’s only legal option would be to refuse to come up with money from any source, thus turning America into a deadbeat for the first time in history—precisely because the debt ceiling would forbid the president from borrowing more money?
In fact, as I re-explained in another recent Verdict column, failing to pay our bills would not mean that we have avoided taking on new debt. When a bill comes due and there is no money in the till, we have two choices: (1) borrow money from a third party to pay the bill, or (2) promise the obligee that we will pay the bill later. (There is a third choice, repudiating the debt entirely, but that is both unconstitutional and even more politically explosive than the other choices.)
People who argue for choice (2) think that Biden must do so in order to avoid taking on additional debt, but in fact Biden would simply be taking on debt in a different form. And as Professor Dorf and I showed in a short 2014 law review article, the debt ceiling statute covers all federal debt, no matter what form it takes. “We didn’t borrow money in the normal way from financial markets,” does not turn debt into non-debt.
And this logic would apply just as much to the Big Coin gambit as to failing to pay our bills. The gambit only works if the Fed allows the Treasury to treat a Big Coin as an “obligation” of the federal government in the same way that the Fed’s balance sheet treats government securities. And because the debt ceiling statute specifically includes all current obligations in totaling federal debt, issuing a $1 trillion platinum coin would increase the debt by exactly one trillion dollars.
That misbegotten Axios column, then, is also wrong in asserting that minting a platinum coin “would not count towards the national debt.” And it adds to the muddle by saying that “[t]he trillion dollar coin would allow the government to spend money without borrowing it or raising it via taxation. That could be a dangerous precedent to set.”
The government can only spend money after Congress appropriates money and designates exactly how to spend it. There is no “dangerous precedent” that would somehow set a president free to spend without borrowing or taxing. (And again, we would be borrowing.) Using the Big Coin gambit would no more let loose a dangerous plague of unfinanced borrowing than a president claiming that he could say: “I can spend money on anything I want, without any laws being passed.” He could say it, but he would be flat wrong.
Are There Any Circumstances in Which the Big Coin Option Would Be the Preferred Move?
As I noted above, the Big Coin option has one distinct logistical advantage over a presidential declaration in advance that he will treat the debt ceiling statute as a dead letter. The gambit could be set up behind the scenes, with Treasury Secretary Janet Yellen and Fed Chair Jerome Powell quietly arranging to carry through on the deposit of a platinum coin on the necessary date.
The political advantage of not requiring advance public notice is in some ways a big plus, but it could also be destabilizing by being a surprise that is sprung on the financial markets without notice (very much on purpose). Perhaps, however, that is a necessary risk that must be taken. Maybe?
Fortunately, if the Fed is going to engage in an illegal transaction behind the scenes to allow the United States not to become a deadbeat, it can do so without compounding the surprise, because it would not have to rely upon an easily ridiculed idea like minting a trillion-dollar coin. The financial markets, and people in general, would be freaked out enough by the whipsaw of being told that the drop-dead date had arrived but that the Fed had saved the day, without further learning that there was some kind of mysterious ingot that made it all possible.
What is the alternative? As a matter of course, the Fed buys and sells U.S. Treasury securities as it carries out its duties to regulate and guide the nation’s monetary system (which is, after all, why the Fed exists). Normally, the Fed buys those securities on the open market, after the Treasury has put them up for sale in a plain-vanilla auction.
But if the White House has determined, quite reasonably, that Republicans’ abandonment of reason makes plain-vanilla auctions untenable, the Fed could directly buy securities from the Treasury and thus allow the Treasury to pay the country’s bills.
Would this also be illegal? Yes, because the debt ceiling makes every choice illegal, including doing nothing. But what I am describing here would be the best approach to issuing more debt—without advance notice, and without relying on a nonexistent loophole in the Coinage Act.
In the face of all that, am I saying that I could never imagine a situation in which the Fed and the Treasury should coordinate and move forward with the Big Coin gambit? I wish it were possible to rule it out, but the politics of this might become even crazier, such that this stupid idea could become the least-bad option.
It would have to be a truly extreme situation, but unfortunately, we know that “extreme” is now completely to be expected. At least so long as Republicans continue down their current irresponsible path, we should all brace ourselves and be prepared for responsible leaders to be forced to do what was once unthinkable. Whatever future we have left as a functioning democracy may depend on it.