American IOU, American Mint, American Politics, Argentino, Business Insider, Debt ceiling, Debt ceiling stand-off, obama, Philip Diehl, Philip Diehl Mint Director and Treasury Chief of Staff, Philip Direhl 35th Director of Mint, Platinum dollars, Woden bills, Zibabwean Bearer Cheques
Well this is a real event. Something Obama has done has finally caught the imagination of the world which looks on grinning as the American dollar becomes day by day closer to the Matabele bungo bead. Obama’s latest idea, never denied by anyone, is that should the Republicans seek to stymie Obama with a block on his raising the debt ceiling come the next fiscal fight, he will simply make a couple of platinum coins, stamp “One Trillion Dollars “ on the front, and stick them in the bank reducing the debt in a trice. Obviously an ordinary civilised country with a functioning Government would just raise the debt ceiling. But America does not have a functioning government so it may resort to this device and Bingo! the debt is reduced by a trillion dollars and the world, or Obama’s America, moves on.
It’s not for real you say, they can’t do that it’s insane! It must just be a threat, some sort of bargaining chip to force the Republicans to the table. If so how little history you know. Strange fiscal devices have been used before in other countries in extremis, albeit with varied success.
How could you forget the Zimbabwean Bearer Cheque? Remember when their central bank decided in 2000 to issue its own “pay the bearer” cheques in large sum denominations for suppliers. Of course it didn’t work, no one would touch them with a stick, and they were quickly forgotten.
Or what about the “Argentino” from Argentina, another basket case back in 2001? This little wheeze was dreamed up when the peso was pegged to the US Dollar and thus became stuck. This device was intended to be used as a sort of internal currency which floated inside the country, whilst leaving the Peso abroad pegged to the dollar. This was seen as the obvious devaluation scheme that it was, and under a storm of complaint and derision was never implemented.
Maybe you might consider “Wooden Bills” a type of internal currency used in German in the 1920’s whereby local communities struggled to maintain some kind of stability by issuing local money for local people to use in local shops. It was of limited value but worthless abroad.
Last of all there is the good old US of A, “I.O.U” as invented by Arni Schwarzenegger when he was Governor of California. Banks very correctly refused to touch these and this too failed.
Obama wants to issue these coins because by law he cannot print debt, but he can mint coin. Now, he cannot just coin gold, copper or silver either, because he is not allowed to, but some clever lawyer type (who has really earned his corn this month) spotted that commemorative platinum coins were not covered by these restrictions, and so the trillion dollar platinum coin is born.
Obama’s magic wee coins have come in for similar complaints as the dafter ideas of Argentina and Zimbabwe, that it is inflationary, that it is illegal, that it is impossible, that international creditors are unlikely to take this too seriously, and comments for and against continue to bump around the internet.
But I think this email below is definitive that the coin is more than just a possibility. It comes from Philip Diehl, a former Mint director who sent the mail to Business Insider where you can see more here.
Here’s his full email, worth printing in full, in which he notes that first that, Yes it’s legal, and second, it would have no adverse economic effects.
I’m the former Mint director and Treasury chief of staff who, with Rep. Mike Castle, wrote the platinum coin law and produced the coin authorized by the law. Therefore, I’m in a unique position to address some confusion I’ve seen in the media about the $1 trillion platinum coin proposal.
* In minting the platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years. The Secretary’s authority is derived from an Act of Congress (in fact, a GOP Congress) under power expressly granted to Congress in the Constitution (Article 1, Section 8).
* What is unusual about the law (Sec. 5112 of title 31, United States Code) is that it gives the Secretary complete discretion regarding all specifications of the coin, including denominations.
* Moreover, the accounting treatment of the coin is identical to the treatment of all other coins. The Mint strikes the coin, ships it to the Fed, books $1 trillion, and transfers $1 trillion to the treasury’s general fund where it is available to finance government operations just like with proceeds of bond sales or additional tax revenues. The same applies for a quarter dollar.
* 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.
* This does not raise the debt limit so it can’t be characterized as circumventing congressional authority over the debt limit. Rather, it delays when the debt limit is reached.
* This preserves congressional authority over the debt limit in a way that reliance on the 14th Amendment would not. It also avoids the protracted court battles the 14th Amendment option would entail and avoids another confrontation with the Roberts Court.
* Any court challenge is likely to be quickly dismissed since (1) authority to mint the coin is firmly rooted in law that itself is grounded in the expressed constitutional powers of Congress, (2) Treasury has routinely exercised this authority since the birth of the republic, and (3) the accounting treatment of the coin is entirely routine.
* 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
So, silly yes, daft even, but Obama looks like he can push the Republicans up against the wall with them come the Debt Ceiling talks.
Copyright David Macadam 2013.