Tuesday, January 8, 2013

Debt Limit Options

I thought I had written about the platinum coin last time around, but if I did, I can't find it. But basically, I think we all covered this last time around...

At some point, Barack Obama will, if Congress does not act, be faced with an impossible choice. He will have clear, conflicting imperatives. Congress will have obligated him to spend money; not spending money that Congress has appropriated is an impeachable offense. The government will also be obligated to make good payments on current debts; he's clearly required to do that, as well. However he also will will be without money to do those things, not have the authority to borrow any more, thanks to the debt limit.

So he will have to choose to have the government violate one of those legally binding commitments.

One option is to blow past the debt limit. He could do so by following an interpretation of the 14th Amendment which essentially makes the debt limit unconstitutional; he's sworn that off, but he could always retreat back to it anyway. He could mint the coin. Kevin Drum has been campaigning against it and believes it's obviously not legal, but Jack Balkin disagreed during the last debt limit run-up and said it was perfectly kosher...I'm not a lawyer, but I think Drum is wrong that it's a slam-dunk against it. Moving on: he can declare that Congress has given him conflicting mandates, and since he's forced to choose he'll keep spending by borrowing. Or he can come up with some other inherent executive power that allows him to keep the government operating normally.

None of these are good choices; the debt limit is bad law, and it's massively irresponsible for House Republicans to hold the economy and the financial standing of the nation hostage by using it. But there's a strong case, given the various bad choices, for blowing through the debt limit one way or another; the best choice would presumably be one that otherwise leaves the presidency and Congress unaffected.

That's if Congress doesn't act. What about before that? The White House is maintaining that they will "not bargain" over the debt limit, which is a sort of tough-sounding nonentity of a position...unless they are prepared to take it all the way. Which only makes sense if they're certain that House Republicans would cave and pass a clean debt limit increase, or if the president is prepared to blast through the debt limit in the even that there's no increase. In which case you get into all sorts of questions about best negotiation tactics. Should the White House announce, publicly, that it intends to blast through it? Do they just say it privately in negotiations? Keep it secret? The answer to that is going to depend on the bargaining situation and what they  think the other side will do -- and the answer to which method of going through the debt limit is best may depend on how how they intend to use it before the deadline. If the president intends, for example, for House Republicans to absolutely believe he'll do it, then the face-silliness of the coin might detract from that; on the other hand, if they think Republicans will fold but want a back-up plan just in case, then they don't need an option which makes the most believable threat.

36 comments:

  1. Kevin Drum's jeremiad against The Platinum Coin Option is based on a complete misunderstanding of the statute and of statutory interpretation in general.

    He seems to think that no court will allow The Platinum Coin Option because Congress didn't specifically intend the statute to be used this way. But that's irrelevant. The fact is, no court would dare prohibit The Platinum Coin Option because the plain language of the statute clearly allows it. Legislative intent is only relevant when the language is ambiguous or subject to multiple reasonable interpretations.

    In other words, it is a slam-dunk. Just not in the direction Drum posits.

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    1. By the way, I disagree that "none of these are good choices." The way I see it, if the GOP refuses to raise the debt limit, Obama has three choices:

      1) Disobey the law requiring him to spend funds appropriated by Congress;

      2) Disobey the law limiting the amount of money the federal government can borrow; or

      3) Obey both laws by obtaining funds without borrowing - i.e., The Platinum Coin Option.

      You may say Option #3 is less than ideal, but it's only a problem in terms of political optics (i.e., it might "look" "bad" for the President to mint a trillion dollar coin in order to avoid violating the debt limit).

      On the other hand, unlike Options #1 and #2, Option #3 has the twin benefits of (1) not risking economic calamity brought about by slashing spending or national default, and (2) being legal.

      And if you think minting a trillion-dollar coin is bad optics, try economic calamity on for size.

      Option #3 is a responsible, legal, good option. Especially considering the only other alternatives.

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    2. Kevin Drum's legal analysis of the platinum coin option involves no actual legal analysis.

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    3. The idea of conflicting mandates seems a little overdone to me. Congress has only appropriated spending through March 27. So may arguably have to insure that much is covered via a debt limit increase. But beyond that, isn't there sufficient money coming in to meet obligations?

      Until Congress appropriates more money that cannot be covered by revenues, Obama has no reason to do anything except allow government to run on its current revenue stream.

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  2. After time and again retreating over lines it has drawn in the sand, this White House simply can't credibly threaten anybody with anything. The GOP would almost certainly not take a platinum coin or 14th Amendment threat serious nor should they based on Obama's past caving. But if this mess actually does reach the point where it's either default or one of those options, Obama has an Constitutional obligation to the country to do what causes the least harm which is to mint the coin, invoke the 14th Amendment, or anything else creative he can come up with. If the House wants to then impeach him for it, good luck to them getting a conviction in the Senate or getting a court to overrule him.

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  3. The Trillion-Dollar-Coins plan is a bad idea. Drum makes a good point about it's dubious legality. And it's very gimmicky.

    But the bigger problem this plan gives the executive branch the power to mint as much money as it wants whenever it wants. The reason we have an independent Fed is because we know that's a really, really bad idea.

    Obama is stronger footing negotiating from the position that that if Congress wants to keep the debt ceiling then it MUST also raise it as needed.

    If Congress fails in this basic responsibility then Obama has to resolve the conflicting legislation. He should (must) do so in a way that does not destroy the American economy and our good credit.

    We should also be shocked that a major political party is actively choosing to destroy our economy and our credit. Maybe we should be voting for people who prefer not to do that.

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    1. I understand what you are saying about setting a precedent where the executive branch can mint coins at will - but let's be clear, Kevin Drum is simply wrong when he says it's of dubious legality.

      In fact, there is no credible legal argument against The Platinum Coin Option. (None that I've read, anyway. If you think you have heard one, please post it here!)

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    2. I'm not a lawyer. But. Let's imagine a different context for this...

      Suppose George W. Bush decided one day that he would exploit an obscure law, designed to print commemorative quarters for collectors, to instead generate $2 trillion in government funds.

      Even if a literal reading of text of the law suggests this is possible, isn't it absurd?

      We're talking about trillions of dollars here AND the executive deciding it can print all the money it wants, without consulting the Fed.

      Regardless of the text, that's a VERY long ways from the legislative intent. No amount of sloppy wording can create a loophole that big.

      And, I love Obama, but a President that tried to claim that power should be impeached.

      At some point you just have to say... Um. No.

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    3. You can't look at this in a vacuum. The measure would only be taken in relation the even crazier measure the GOP is threatening. Obama could even take the measure with the express statement that he wants Congress to fix the loophole alongside a law also doing away with the extraneous debt ceiling.

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    4. You can and should look at these things independently. The GOP Congress is being incredibly irresponsible. But a critical role of the President is the interpretation of laws.

      We really don't want a President to decide to (mis)interpret an insignificant law to conclude they have unlimited authority to create infinite amounts of money.

      The President has much better solutions available to him. It IS the President's job to resolve conflicts between existing laws. He can do that here in a way that doesn't do lasting harm to the country.

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    5. I am confused. By "actively choosing to destroy our economy and our credit.", are you referring to the democrat party? They seem to not come up with a budget, not follow regular order for Congress, and continue to spend like drunken sailors.

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    6. @Swain:

      I am a lawyer, and I wouldn't care one whit if George W. Bush decided to mint a $10 Trillion platinum coin.

      He can only spend what's been appropriated by Congress - no more, no less. So, mint away.

      Regardless of the text, that's a VERY long ways from the legislative intent...a President that tried to claim that power should be impeached.

      In order to impeach, you've got to be convicted of a crime. And there's no crime here. Congress has (consistent with the Constitution) given the executive branch the authority to mint platinum coins in any denomination.

      You may not like it if the President exercises that power, but you can't impeach him for it.

      And I'll say again: legislative intent means bupkis if the statutory text is unambiguous - which it is here.

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    7. @Swain

      The President has much better solutions available to him. It IS the President's job to resolve conflicts between existing laws. He can do that here in a way that doesn't do lasting harm to the country.

      I think each one of these statements is demonstrably wrong. Care to defend them?

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    8. @Andrew

      Maybe you would have been indifferent if Bush had decided to mint a few trillion dollars. But I don't think that sentiment would have been universal. Bush had something of a blank check for the GWOT. I imagine that, had he decided to grant himself an infinite bank account to go with it... there would have been complaints.

      Ultimately, when it comes to the people who write and enforce the laws, what the law "really means" is as much political question as a textual one. You may disagree. But I don't think an infinite money loophole, found in a commemorative coin law, is going to fly. Nor should it.

      In terms of "better solutions", I was thinking that the President would have to choose between enforcing the debt ceiling law or enforcing all the other, equally legitimate, appropriations. Given the choice, the better solution would be to ignore the debt ceiling. It conflicts with all the others and Obama has to resolve the conflict.

      On further reflection, I no longer think he could (or should) exercise that option. I’m not even sure he has that option. The executive is entrusted to enforce ALL the laws and doesn’t get to pick and choose.

      It seems like the best, and perhaps only legal outcome is this:

      When the Government runs out of money, and it has no borrowing authority, it keeps sending out the checks. And those checks bounce. All of the millions of people who are owed that money are entitled to sue.

      Obviously, the “bounced checks” option would be an economic disaster. But we live in a Democracy. We empower our representatives to create economic disasters if they so choose. We also trust that they will try and avoid them.

      Obama has to make it clear that there is no magic, back-door solution. Congress needs to either raise the debt ceiling or face the consequences of failing to do so.

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  4. I think that when the Administration says, "We're not going to negotiate," then what they mean is,"We're not going to make any proposals." And the reason for doing this is simple. They want the Republicans to stand up and say, "Cut Social Security/Medicare/Medicaid/Everything else or we'll blow this economy up!" and put numbers to it. The most likely way that the Republicans could do this on a short notice would be to dust off the Ryan Plan.

    So Boehner gets the unenviable job of standing up in front of the cameras with the Ryan Plan, and championing specifically what's in it. Or he won't raise the debt limit. Sounds like a winner!

    Honestly, I don't see Obama as needing to do anything to prepare for the Republicans for being unreasonable. He's already put the business community on notice that the people they fund are the problem. What he wants to do here is make sure that the business community believes him.

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  5. To complicate things a bit, per Boehner's WSJ interview, I think it's likely that Repubs will forego full-bore debt ceiling brinksmanship, but couple short-term raises w/ attempted hardball over the sequester. Which side would be more spooked by the sequester going into effect?

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  6. I think the best option was one suggested by Josh Barrow (I think) would be to trade the platinum coin option for removing the debt ceiling all together. That would seem to be the best outcome for this manufactured crisis. And for that to happen, the White House has to credibly threaten to use coin, and not rule it out.

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  7. Minting a platinum coin might be legal, but one problem is that in politics "looking bad" may have a greater impact than mere law or constitutional provisions. Many people can be convinced that something is unconstitutional (as long as you don't actually take it to the Supreme Court). And following on swain's point about political control over the money supply, could this be equivalent to breaking a long-standing norm for political advantage? Granted, in this case, it's not a narrow, self-interested advantage, but once you break the norm you may lose control over where the consequences go.

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  8. (1) Are some of the laws written like "To the extent not otherwise obligated ..." so that he isn't required to spend if Treasury doesn't have the money?
    (2) Does his Commander-In-Chief role override Congressional law and allow him to order that the military (and only the military) not spend certain money?

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  9. I think I disagree with you about what qualifies as a threat. When Obama says he won't invoke the 14th Amendment, won't mint a trillion dollar coin, can't prioritize interest payments, those are threats.

    The threat is that if Congress fails to raise the debt ceiling then Obama will cause a default and take us to a terrible place.

    Saying that he would still pay debt interest or in any way make payments beyond tax receipts is the opposite of a threat. It is a promise to Congress that if they do nothing Obama will take actions that 1) avoid catastrophe, and 2) are easy to deride.

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    1. Wait, fellow Anon, let me understand.

      The House says, "Negotiate or we won't lift the debt ceiling. Then the nation defaults and the economy shatters."

      Obama replies, "You must lift the debt ceiling without delay. I will not compromise with you. If you do not lift the ceiling, my hands are tied, and the nation defaults."

      And you claim that Obama is threatening the House? How, exactly?

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    2. I assume that the median House Republican would rather impeach Obama for illegal borrowing / spending / printing of money than send the country into default.

      So Obama's threat is that failure of Congress to pass a debt ceiling lift would actually send the country into default.

      A statement of future intent is a threat if it is meant to frighten, thus Obama is making a threat.

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    3. Threats are generally understood to be statements about future actions one will take given certain events.

      If you say that you will step out of a third story window unless I agree with you, and I protest that you will succumb to gravity and possibly break your neck, then I am not threatening you.

      Is English your second language?

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    4. No, reality is his second lifestyle.

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  10. I agree with Anon 1:59. Obama will not pursue any of these gimmicky options because doing so makes the story about him rather than the GOP's idiocy. It would be a great gift to them if he lets them refuse to lift the debt ceiling, suffer no consequences, and then get to complain about his questionably legal tactics to boot.

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    1. A cynical solution Obama could take here would be shutting down the government for a week or so, wait for the screams from Soc Sec recipients and everyone else to become deafening, then declare that he has no choice but to mint the coin, saving us all.

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    2. Or do the Clinton, which is to say, nada. The screams won't be directed at him, they'll be directed at the Republicans. Gingrich is right when he says that the Republicans will have to cave. And who would know better?

      Look, Obama made them blink on raising taxes. He's going to push the advantage. He's going to make them back down on their own accord. His goal here is not allowing them to save any face at all. No last minute deals, no nothing.

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  11. Several journalist/pundits, including I think Klein and Tomasky, have said offhandedly and as mere assertion in their analyses of the debt ceiling that the "business community" will not let the GOP play hostage with the debt ceiling this time, but where in the world is there public evidence of this? Have influential business lobbying groups made any statements about this at all? Isn't it pretty damning if businesses, and business and finance lobbying groups, will only imply this to reporters on deep background, never as public statements that would actually put pressure on the GOP?

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    1. Well, these same folks have actually contributed to their own problem. The GOP can't be sensible on the debt ceiling because the arguments being made by Limbaugh, Beck, Bachmann, etc. are really the logical extension of the arguments the GOP has been making forever.
      With the advent of the conservative information loop, they've programmed their base so well that their base is now pushing for things that go beyond the smaller fights they wanted to win at the time. The Koch brothers (as an example) just wanted to be able to make Dixie cups without any safety regulations for the workers (to make a bigger profit) and then pay less taxes on those profits. They had to concoct this BS to sell it, but now, the base is running with it. (It reminds me of the plot to Book of Mormon, actually).

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    2. Ah, here we go. It's about time!:
      http://www.washingtonpost.com/blogs/plum-line/wp/2013/01/09/business-leaders-failure-to-raise-debt-ceiling-will-drive-markets-haywire/

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  12. It's illegal not to pass an annual budget to set some spending constraints but you notice the Democrat controlled Senate has not done so and Obama hasn't complained once. Obama reversing what he says or ignoring the law has been the norm so that is not even an issue.

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    1. Congratulations for spewing a Fox News talking point. It's simply incorrect. Once Congress authorizes and appropriates money, that's it. A 'budget' is a non-binding blueprint for that year's revenue and spending; tax bills, authorizations, and appropriations bills are the ones that have the force of law. And Congress has passed those.

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    2. Correction: those bills, once passed into laws, are the binding ones. Bills are what they are before being passed and signed by Congress & Prez.

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  13. Reading this thread makes me realize how idiotic and out of touch the democratic/liberal party is. If President Obama has his way with regard to revenue and spending he will bring us to 20 trillion dollars of national debt by the end of his second term. We would be better of with the sequester, spending cuts (significant ones)is the only way for this country to move forward. Only by significantly raising taxes on every american can the money be generated to support his plan.... if that is your goal be honest and say that and stop lying to the general population.

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  14. As several bloggers have pointed out, minting the coin is NOT necessarily manufacturing money. The Fed could, and almost surely would, sell off bonds from its existing stock to keep the money supply where it wants it to be.

    Responding to Anonymous at 12:53, President Obama does not and will not "have his way with revenue and spending." His only role is to sign or veto bills that are passed by Congress. The country has already achieved 3.5 trillion dollars in deficit reduction since the financial crisis.

    I am all in favor of cutting the military to (say) the sum of the next 10 countries' spending. Taking food away from poor children is a very bad idea.

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  15. I find it interesting that keep coming back to options that either destroy the country now or raise the debt ceiling (which will, if it keeps going, destroy the country later). Where are the solutions that allow us to stay within budget (and by that I mean not spending money we don't earn)? I cannot say that this is a Republican problem or a Democrat problem. From what I have seen, both parties are responsible and both parties should be looking for ways to fix it.

    David,

    Where has that deficit reduction occurred? Some other country? I am looking at numbers from the CBO and it looks like to me that deficit spending was about .5 trillion in 2008, 1.4 trillion in 2009, 1.3 trillion in 2010, and 1.3 trillion in 2011. Sounds like we, as a country, have achieved nearly 3 trillion in deficit increase since the financial crisis.

    I agree that taking food away from poor children is a bad idea. And, with us no longer in war with 2 countries, some military cut back could happen. More than about 50 or 100 billion would probably be way too severe, though. I am wondering what will happen when the 100 trillion (give or take a few trillion) that we have in obligations to medicare, medicaid, and social security hits. What will we do when our entire budget is eaten by entitlements (which I agree that we need to have a social safety net)? Who has the answers to these questions? Who is working to find them? Heck, who at the federal level is even asking those questions?

    It seems we have a lot of in-fighting about "liberal" issues or "conservative" issues. Or we divide between "Democrat" or "Republican". How about we tackle "American" issues as "Americans"? There will be some fighting over ideals. There will be compromising on both sides of the party lines. We won't find perfect solutions. If we do things right, we will find better solutions. And if you keep making things better, then eventually it will get to at least nearly perfect. I am so tired of all this infighting. What, are we electing 5th graders to federal positions? Must we resort to calling names and telling the other side that we cannot work with them? Maybe, just maybe, our leaders will step up and be just that. Okay, probably not, but at least I can hope.

    Trevis Kelley

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