On Twitter, Atrios demanded more talk of the platinum coin as a solution to the looming showdown over the debt ceiling. For those who don’t remember what the platinum coin idea is all about, check this out—a very good explanation of the issue, as well as a link to a good Chris Hayes segment on it.
But the thirty-second version runs like this: currently, to fund governmental activities, the Treasury draws on an account at the Federal Reserve. The account is fed by both tax revenues and the proceeds from selling bonds (debt). But, because the United States has a statutorily imposed limit of how much outstanding debt is allowed, once this limit is reached on issuing new debt, Treasury can no longer sell bonds and deposit these proceeds, and hence the account at the Federal Reserve will dwindle. By October 17 (current guesstimate) it will be too small to finance that day’s governmental activities. A suggested way around this has been to have Treasury mint a coin (which has to be platinum for a reason too boring to note in depth) with a denomination of $1 trillion, deposit it at the Federal Reserve and, voila, governmental outlays can continue.
It’s true that the idea of minting a trillion dollar platinum coin as a solution to our nation’s problems sounds like something out of the Simpsons. But, the thing to realize is that while it is indeed a phony accounting solution, what it resolves is a phony accounting problem.
That phony accounting problem is the fact that the country even has a statutory debt ceiling—something almost no other advanced economy faces.
At the present, there is no evidence at all that there is a binding economic constraint being imposed on the U.S. economy by its public debt. And yet we’re staring a financial crisis in the face because of the phony accounting problem imposed by the fact that we arbitrarily specify a (nominal, not even inflation-adjusted!) dollar figure above which the Treasury needs Congress’s authority to borrow.
Brad Plumer had an excellent article back in January that noted the very long list of establishment figures—both Republican and Democratic—who have called for the (effective, at least) abolition of the debt ceiling: the GAO, the CBO (kind of), Alan Greenspan, Bruce Bartlett, Larry Summers, Paul O’Neill, Robert Rubin, Moody’s ratings agency…this is not a list of dirty populists, right?
Given this list of staid establishments and policymakers calling for an outright end to the debt ceiling, surely it can be agreed that this is a position allowed in respectable debate, no? Jon Stewart, for example, probably won’t do a segment about how kooky an idea it is, right?
But think back to the trillion dollar platinum coin. An oft-used debating tactic used against it is “why stop at one trillion, why not two, or five, or twenty…”. In the Up! segment I noted earlier, Stephanie Kelton essentially said sure, print a ONE HUNDRED trillion dollar coin and even Chris Hayes seemed knocked off stride and began ruminating a bit about vague financial market distress if we were to actually do such a kooky thing.
But this is the important part; abolishing the debt ceiling (which we have agreed is a purely respectable position) is the same thing as minting an INFINITY TRILLION DOLLAR COIN!
All minting the coin does is allow the Federal government get around the accounting constraint (the arbitrary statutory debt ceiling) on borrowing more money. And this is the exact same thing accomplished by abolishing the debt ceiling (again, a purely respectable position).
And, in fact, the coin just effectively raises the debt ceiling by some discrete (granted, large) number. Abolishing the debt ceiling raises it effectively to infinity.
So why is that Paul O’Neill, Treasury Secretary under George W. Bush, can call for the equivalent of minting an INFINITY TRILLION DOLLAR COIN and be considered a paragon of non-partisan good government, while those wanting to mint a trillion dollar coin are considered absolutely crazy?