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Saturday, January 12, 2013

Champagne Wishes and Platinum Dreams: RIP

Obama Administration will not mint the $1 trillion platinum coin
White House: The $1 Trillion Platinum Coin is not going to happen
The dreaming and scheming for the Trillion Dollar Coin (TDC) made of platinum has come to an end. It was fun while it lasted. Anyway, the announcement from the U.S. Treasury, as reported by the Washington Post, followed shortly by a White House statement, as reported by the Huffington Post, confirm that the platinum coin plan is dead.

The administration has put the kibosh on using the $1 trillion platinum coin as a means to loosen the Congressional Republicans' death grip on the debt ceiling.

The Obama administration apparently has some other "Plan B" in the works. Could it be the use of IOU's or coupons to pay the bills? Or by discarding the ace up his sleeve, actually the magic coin in his pocket, this quickly has the President decided to simply stake out the moral high ground? No monkey business with the money, no currency hacking, just stand firm, be the grown-up and expect Congress to do the same, and put on their big boy pants and pay their bills.

So, the soft currency crusaders have been repelled at the walls of the U.S. Treasury. Former Treas. Sec. John Sherman will not be rolling around in his grave, at least temporarily. And the soft currency crusaders, like Paul Krugman are now left asking, "So what will you do, Mr. President?"

Here is the roundup and fallout from champagne wishes and platinum dreams being dashed to pieces today:
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Ezra Klein /  Washington Post:
Treasury: We won’t mint a platinum coin to sidestep the debt ceiling  —
The Treasury Department will not mint a trillion-dollar platinum coin to get around the debt ceiling. If they did, the Federal Reserve would not accept it.

That’s the bottom line of the statement that Anthony Coley, a spokesman for the Treasury Department, gave me today. “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” he said.

The inclusion of the Federal Reserve is significant. For the platinum coin idea to work, the Federal Reserve would have to treat it as a legal way for the Treasury Department to create currency. If they don’t believe it’s legal and would not credit the Treasury Department’s deposit, the platinum coin would be worthless. ...
-----
The White House now confirms the Treasury statement that there is no coin strategy going forward.

Sam Stein / Huffington Post:
Platinum Coin Dismissed: White House Ratchets Up Pressure On GOP To Deal With Debt Ceiling — WASHINGTON -- In the wake of news that both the Treasury Department and the Federal Reserve rejected the minting of a trillion dollar coin as a solution to help raise the debt ceiling, the White House issued the following statement to The Huffington Post.
"There are only two options to deal with the debt limit: Congress can pay its bills or they can fail to act and put the nation into default," said Press Secretary Jay Carney. "When Congressional Republicans played politics with this issue last time putting us at the edge of default, it was a blow to our economic recovery, causing our nation to be downgraded. The President and the American people won't tolerate Congressional Republicans holding the American economy hostage again simply so they can force disastrous cuts to Medicare and other programs the middle class depend on while protecting the wealthy. Congress needs to do its job."
 -----
discussion:
Paul Krugman:
So What Will You Do, Mr. President?  —
If I’d spent the past five years living in a monastery or something, I would take the Treasury Department’s declaration that the coin option is out as a sign that there’s some other plan ready to go. Maybe 14th Amendment, maybe moral obligation coupons or some other form of scrip, something.

And maybe there is a plan.

But as we all know, the last debt ceiling confrontation crept up on the White House because Obama refused to believe that Republicans would actually threaten to provoke default. Is the WH being realistic this time, or does it still rely on the sanity of crazies? ...
Joe Weisenthal / Business Insider:
COINMAGEDDON: White House Rules Out Using Trillion 
With this, the White House has now ruled out the two best options for preventing a default in the event that the House GOP refused to life the debt ceiling. The White House has been quite adamant that the other alternative (invoking the 14th Amendment) is not acceptable.
So now the stakes are high, as The White House has refused to negotiate with the GOP on a debt ceiling hike.

What bargaining chips does The White House hold? Unclear.

Klein adds another incredibly salient point about the comment he receives:
The inclusion of the Federal Reserve is significant. For the platinum coin idea to work, the Federal Reserve would have to treat it as a legal way for the Treasury Department to create currency. If they don’t believe it’s legal and would not credit the Treasury Department’s deposit, the platinum coin would be worthless.
The good news? ...
-----
Was it Ben Bernanke who killed the coin?

Bruce Krasting / Zero Hedge:
Ben B. Nixed The Coin - What Does That Mean?
In the past 24-hours I've been reading the postmortems on the Coin; I just watched the Sunday morning shows. In my opinion, the Press is missing the story.  
The key sentence from the White House that killed the Coin for good:
“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit”
I think the line "Treasury nor the Fed", is baloney. It was the Fed, in a message delivered by Bernanke, that caused Obama to back off on any consideration of the Coin. There might have been wiggle room in existing law to print a Coin, but there is nothing that says that the Fed had to take it. And Bernanke said, "No". When Obama ditched the Coin, he did it because it was no longer an option. Bernanke took the option off the table. The WH statement makes it sound as it it was their decision, that's just smoke and mirrors...
-----
James Fallows / The Atlantic Online:    
  1. Raising the debt ceiling does not authorize one single penny in additional public spending.
  2. For Congress to "decide whether" to raise the debt ceiling, for programs and tax rates it has already voted into law, makes exactly as much sense as it would for a family to "decide whether" to pay a credit-card bill for goods it has already bought.
 ----
Rachel Weiner / Post Politics:   ‘Platinum coin’ now a campaign attack
-----
Jonathan Chait / NY Magazine:
 IOUs vs. Platinum Coin: Pick Your Hostage Rescue — Enthusiasts of minting platinum coins to forestall economic apocalypse have taken over the Internet, but a different crisis-aversion plan seems far more likely: Just have the Treasury Department issue coupons to its vendors. Paul Krugman suggested the idea a few days ago, and law professor Edward Kleinbard fleshes it out in today’s New York Times "Op-ed" page....
-----
Final words from Georgia attorney Carlos Mucha , also known as "Beowulf," the mastermind behind the platinum coin strategy:

I wanted to come out of retirement (started studying military history and may blog on it some day) long enough to make a point about today’s Tsy announcement that neither Tsy nor the Fed was interested in the trillion dollar coin.

To throw away the high ground in a fight; to climb in the water to fight the shark is just irrational when you can stay in a boat and throw sticks of dynamite. It reminded me of General MacArthur dooming American troops to being starved out of Bataan by the Japanese Army by him neglecting to secure his food depots.

“One depot alone, at Cabanatuan on the central Luzon plain, held fifty million bushels of rice—enough to feed U.S. and Filipino troops for over four years.”
American Caesar: Douglas MacArthur 1880 – 1964

However, its also possible that the New York Fed has a Manhattan Project or two up their sleeve. Time will tell.
********
Here is the short history of the $1 Trillion Platinum Coin as followed at The Johnsville News:

January 12, 2013
Magic Money / Magic Coin

January 11, 2013:
Champagne Wishes and Platinum Dreams: Do all roads in D.C. lead to the U.S. Mint? (roundup)

January 11, 2013
Soft Currency Crusaders and the Trillion Dollar Coin (roundup)

January 10, 2013
The Trillion Dollar Coin (TDC) is Left on the Bargaining Table (roundup)

January 9, 2013:
More Champagne Wishes and Platinum Dreams (roundup)

January 8, 2013:
Champagne Wishes and Platinum Dreams versus Tea Party Steel. (roundup)

January 4, 2013:
Hammering Away at the Platinum Coin Gambit — with the tax question settled Washington turns to the debt ceiling and PCS (Platinum Coin Seigniorage) roars into the New Year, roundup.

December 15, 2012
Neutering Option for Ben Bernanke and the Federal Reserve — Thinking Big: Give the US Government a $60 Trillion Blank Check [mega-sizing the platinum coin to neutralize the Fed]

July 29, 2011:
Debt Watch / Coin Trick: the Trillion Dollar Coin — First roundup of how the trillion dollar coin idea germinated and spread on the internet leading up to the debt ceiling debate during the summer of 2011.

Background, the use of PCS has its roots in MMT (Modern Monetary Theory), discussed here: June 29, 2011, Modern Monetary Theory (MMT) in a Nutshell

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