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Wednesday, January 9, 2013

More Champagne Wishes and Platinum Dreams

Just following the platinum brick road to the Emerald City as it passes through Johnsville.

Today's round-up of trillion dollar platinum coin dreams:

Is trillion dollar platinum coin debate the most important fiscal policy debate in our lifetime?
Joe Weisenthal / Business Insider:
Why The Fight Over The $1 Trillion Coin Is The Most Important Fiscal Policy Debate You'll Ever See In Your Life — The campaign to circumvent the debt ceiling by having the Treasury mint a trillion dollar platinum coin continues to infiltrate the minds of elite thinkers in Washington.

Paul Krugman has come out in favor of it. Congressman Jerry Nadler is in favor of it. Pretty much every major news organization is discussing it. Even Stephen Colbert talked about it last night.

As Jonathan Chait at NYMag observes, what's interesting is that there are very few good arguments, legal or economic, against minting the coin...

Talking Points Memo:
9 Faces For The $1 Trillion Platinum Coin  — America is once more on a collision course with the debt ceiling, threatening the economy’s fragile recovery with an entirely avoidable crisis of Congress’ own making. But there may be a way to avoid the whole mess: President Obama can legally mint a commemorative coin worth $1 trillion to guarantee the nation’s creditworthiness. That creates its own crisis, however — namely, who do you put on the platinum coin? Fortunately, we rounded up some options...

Paul Krugman / NY Times:    
Rage Against the Coin — Well, the trillion-dollar-coin thing — deal with the debt ceiling by exploiting a legal loophole to have the Treasury mint one or more large-denomination coins, deposit them at the Fed, and use the cash in the new account to pay bills — has really taken off. Last month I spoke with a senior Fed official who had never heard of the idea; these days it’s all over...

in practice minting the coin would be nothing but an accounting fiction, enabling the government to continue doing exactly what it would have done if the debt limit were raised... 
Steve Randy Waldman / interfluidity
Rebranding the “trillion-dollar coin” — The Treasury won’t and shouldn’t mint a single, one-trillion-dollar platinum coin and deposit it with the Federal Reserve. That’s fun to talk about but dumb to do. It just sounds too crazy. But the Treasury might still plan for coin seigniorage. The Treasury Secretary would announce that he is obliged by law to make certain payments, but that the debt ceiling prevents him from borrowing to meet those obligations. Although current institutional practice makes the Federal Reserve the nation’s primary issuer of currency, Congress in its foresight gave this power to the US Treasury as well. Following a review of the matter, the Secretary would tell us, Treasury lawyers have determined that once the capacity to make expenditures by conventional means has been exhausted, issuing currency will be the only way Treasury can reconcile its legal obligation simultaneously to make payments and respect the debt ceiling. Therefore, Treasury will reluctantly issue currency in large denominations (as it has in the past) in order to pay its bills. In practice, that would mean million-, not trillion-, dollar coins, which would be produced on an “as-needed” basis to meet the government’s expenses until borrowing authority has been restored
Felix Salmon / Reuters:
Why we won’t mint a platinum coin — Let’s be clear about this: no one’s going to mint a trillion-dollar platinum coin. Nor is anybody going to mint a million million-dollar platinum coins. But it would probably be stupid for anybody in the government to say that they’re not going to do it.
The trillion-dollar coin is the fiscal equivalent of the Flying Spaghetti Monster: a logical reductio ad absurdum designed to emphasize the silliness of an opposing position. For instance, if you don’t believe that churches should be tax-exempt, then you just claim that your entire family are Pastafarian priests...
Megan McArdle / Daily Beast:
Washington Goes Platinum — Short-term non-solutions to long-term problems.

I hope you'll pardon me while I go off on a rant here. The trillion dollar platinum is an absurdity wrapped in a legislative incongruity inside a farce. It is the logical extension of an utterly illogical legislative process that only becomes more irrational with each passing day. Each partisan battle has become stupider than the last. Silly loopholes are exploited for bargaining power, and the resulting stalemates are generally solved with a temporary patch that solves the immediate problem by creating a bigger one down the road. When the bigger problem arrives, naturally the other side seeks an even sillier loophole, resulting in an even more temporary patch...
Matthew Yglesias / Slate:
Mint the Coin — The silly but totally legitimate loophole that lets the Obama administration avert the debt-ceiling showdown with a $1 trillion platinum coin...

And this, in many ways, is the best possible reason to mint the coin. It’s so absurd that it’s bound to prompt a backlash. Rep. Greg Walden (R-Ore.) is already talking about a bill that would close the platinum loophole. It’s a perfectly reasonable idea, and the Obama administration should be happy to agree to do it. If, that is, Congress agrees to close the loophole that lets it pass tax and spending bills that make a budget deficit necessary and then refuse to allow the borrowing to finance that deficit. In other words, kill the loophole in exchange for eliminating the statutory debt ceiling. In the future, the government will spend what Congress tells it to spend and collect the taxes Congress tells it to collect and rely on borrowing rather than platinum to fill the gap. That’s how it ought to work, and it’s how it has worked in practice for decades...
Rebecca Clancy / UK Guardian:
US 'seriously' considering $1 trillion coin to pay off debt — Speaking to the BBC's Today programme, Mr Roche, founder of Orcam Financial Group and blogger at Pragmatic Capitalism, said the idea was being taken "somewhat seriously" in Washington.

"I know it’s been spoken about at the White House and a number of prominent people, including congressman, are talking about it," he said...

Mr Roche also did not expect the Treasury to go ahead and mint a $1trillion coin, but said President Obama could use it as threat...
Cullen Roche / Pragmatic Capitalism:
Philip Diehl, Former Head of the US Mint Addresses Confusion Over the Platinum Coin Idea — Philip Diehl, former head of the US Mint and co-author of the platinum coin law comments on the recent confusion and discussions over the use of the platinum coin.  This is a must read:
* Once the debt limit is raised, the Fed ships the coin back to the Mint, the accounting treatment is reversed, and the coin is melted. The coin would never be “issued” or circulated and bonds would not be needed to back the coin.
* There are no negative macroeconomic effects. This works just like additional tax revenue or borrowing under a higher debt limit. In fact, when the debt limit is raised, Treasury would sell more bonds, the $1 trillion dollars would be taken off the books, and the coin would be melted.
* Yes, this is an unintended consequence of the platinum coin bill, but how many other pieces of legislation have had unintended consequences? Most, I’d guess.

Philip N. Diehl
35th Director
United States Mint
Peter Roff / US News:
Obama's Magic Trillion Dollar Coin Trick — The platinum coin trick does not pass the laugh test; this does not mean, however, that the idea is going nowhere. Unless Congress acts to prohibit the coins from ever being struck it is always possible the president, any president could keep one or two up his sleeve just in case. It's bad policy, bad politics, and bad economics. It should be rejected out of hand and the White House should make clear it has been.
The Colbert Report / Comedy Central:
The Platinum Debt Ceiling Solution — Minting trillion dollar platinum coins to pay off America's debt is legal in that it is not technically illegal.

Steven Colbert reports on the Trillion Dollar Platinum Coin Option

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