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.
So why should we all be glad this didn't happen?
The platinum coin idea gained some powerful adherents during the debt-ceiling crisis of 2011, but it really developed traction following the 2012 fiscal cliff deal, as politicians and economics writers realized that the country would, indeed, be facing another debt-ceiling crisis in a matter of months. A Twitter campaign by Joe Weisenthal, of Business Insider, and Josh Barro, of Bloomberg View, forced it into the conversation, and subsequent endorsements by Rep. Jerry Nadler (D-NY), Nobel Prize-winning economist Paul Krugman and former U.S. Mint director Philip Diehl gave it further legitimacy.
But others, including myself, worried that the coin would be seen as an unprecedented power grab by the president, leading to a far more bitter standoff over the debt ceiling, a possible panic in the financial markets and a showdown in the courts. There was also the simple fact that it would, indeed, represent an admission that the government’s executive and legislative branches could no longer be trusted to come together and effectively manage the country’s finances.
And furthermore from a purely political standpoint, minting the coin would have been a response that was a tacit admission that the GOP had the right to default on our already appropriated obligations. The debt ceiling isn't to stop further spending, it's to block our existing financial obligations. That means we would be in default. And that would destroy our economy:
The Treasury may have some ability to choose which payments to default on, and when to default on them, but the bottom line will be the same: The Treasury will only be able to pay about 60% of the bills that are owed.
In relatively short order, therefore, the United States will stiff about 40% of the people and companies it owes money to.
Importantly, this default is different from the "government shutdowns" that have happened from time to time (in the 1990s, for example). In those cases, Congress had yet to authorize government spending. This time, the spending has been authorized: Congress has already promised to pay these bills. This time, in other words, we will be choosing not to pay people and companies we have already promised to pay.
This has never happened before in the history of the United States.
The full faith and credit of the United States would disintegrate overnight. The GOP would be responsible for destroying our economy. This statement by the Treasury and Fed make it unequivocally clear that if Republicans in Congress plunge us into default, they will take the full blame for the recession (if not depression) it would trigger.
Republicans know this. They are bluffing. President Obama has already said he will not negotiate with these terrorists. So please proceed, congressional Republicans.
I'd love to have the House back in 2014.
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