POCKET CHANGE JANUARY 13, 2013
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The platinum coin has a future as a collector’s item but not, it would seem, as a way to avoid the debt ceiling.
The Obama Administration announced late Saturday that it will not be minting a trillion dollar coin and depositing it in the Federal Reserve, thereby allowing the government to spend money even if Congress refuses to increase government's borrowing authority. That's potentially a big deal. Without the ability to borrow or spend, the government wouldn't be pay its bills. And, as you may have heard, the government has a lot of bills to pay—to Social Security recipients, for example, and to vendors who sell products to the government. The government also owes interest payments to the holders of U.S. bonds. Defaulting on those payments could, according to many economists, be catastrophic.
Obama’s decision, first reported by Ezra Klein in the Washington Post, is not surprising. Obama did not avail himself of the coin option in 2011, the first time Republicans used the once-routine debt ceiling increase to demand cuts in the federal budget. Similarly, the administration has ruled out borrowing money on its own authority, by drawing on the 14th Amendment for justification. An array of legal scholars has indicated that one, if not both, of the options would be constitutional. But Obama has never shown even the slighest enthusiasm for these maneuvers.
The interesting question is why. By refusing to increase the debt ceiling, the Republican Congress is practicing a form of economic extortion. The coin, like the 14th Amendment, seemed to give the administration a chance to stop that extortion from working. Just this week, Senate Democratic leaders issued a letter, made public by Greg Sargent in the Post, practically begging Obama to invoke this sort of authority. With Saturday's announcement, Obama basically said "no thanks." Is this yet another one of those concessions that congressional Democrats and other administration allies will come to rue?
Perhaps. But the White House doesn't think it's backing down. Administration officials believe they are standing firm—that the coin option, if anything, was becoming a distraction. "There are no magic coins," one senior official told the Huffington Post. "There is no way to get out of this. We feel fine about the politics of it. We think we are in a stronger position if Republicans realize there is no out."
That assessment may be correct. Polls suggest that Republicans will take most of the blame for a prolonged showdown—and any economic consequences it brings. History implies the same. Approval ratings for congressional Republicans fell after the summer of 2011. Republicans had reason to risk the political backlash back then, because they knew that Obama, already facing a tough reelection battle, would feel it too. This time around, the calculus has to be different. House Republicans still have to run for reelection in two years. Obama has to run for reelection…never.
Republican congressional leaders seem to recognize this, even if some of their members do not. For the last week or two, they have been hinting they’re looking for ways to avoid another debt ceiling fight. During an interview with the Wall Street Journal, House Speaker John Boehner talked about the debt ceiling as “one point of leverage” but specified that it was “not the ultimate leverage.” A little over a week ago, on the Sunday shows, Senate Minority Leader Mitch McConnell dodged repeated questions about the debt ceiling. Meanwhile, Republicans are under coming under pressure from supporters in the business community, who worry about the economic repercussions of hitting the debt ceiling.
The platinum coin idea had recently gained a lot of support from some pretty influential writers and thinkers, among them Paul Krugman and Josh Barro. But as the notion gained credibility, it also became a media obsession. Was the idea a faithful reading of the law? How would Republicans react? Whose face would go on the coin? Serious practical questions also loomed—in particular, would the Federal Reserve even accept the deposit? (The White House cited this issue explicitly in its announcement on Saturday.)
Time spent answering those questions was time not spent exploring what default might mean for Social Security beneficiaries or how default might ripple through the economy. You can safely assume West Wing officials worried that a protracted debate about the coin's propriety was going to make their job more difficult, not less, by interfering with their ability to portray the debate in simple, straightforward terms.
Josh Marshall captured this thinking well in a recent post:
One of the big problems with the debt-ceiling drama is that the vast majority of people don’t understand what’s being discussed. You hear relatively serious people on the news acting as though it’s Obama asking to spend more money or even unlimited money. So you have misunderstandings about what it means, compounded by tendentious misrepresentations and then simple inattention. But, as we’re already seeing on the standard misinformation sites, the second you start talking about the President minting a special trillion dollar quarter, people pop up and say, What the F#*% are you talking about?
In other words, the Platinum coin has the additional magic of making it look like the President is the one doing something reckless and totally crazy rather than Congressional Republicans who are the ones really doing it.
But having foresworn the coin option, the administration puts even more pressure on itself to prevail in a standoff with the Republicans. Obama says he won’t negotiate over the debt ceiling. But, come February, he (or his allies in Congress) will be be negotiating with Republicans over two other fiscal issues, the automatic spending cuts of the “sequester” and the need for a new spending bill to keep the government operating. Republicans are sure to bring up the debt ceiling in these discussions. Treating it as a distinct matter, off-limits for negotiating, will be difficult.
Choose your analogy—hostage-taking, a game of chicken, whatever. The question remains, will the administration flinch first? The administration says no, but its allies wonder. “Ruling out the coin idea is, by itself, understandable,” one senior Democratic aide said via e-mail, “but the refusal to assert any form of leverage whatsoever is maddening.”
Update: I originally suggested that, by depositing a coin with the Federal Reserve, the government could increase its borrowing authority. That's incorrect. It would actually be increasing its ability to spend, although the effect would be the same.
14 comments
Keep writing checks for appropriated expenditures, if the Fed will agree to honor them, as it should.
- roidubouloi
January 14, 2013 at 12:20am
I cannot believe the GOP is, once again, willing to trash people's lives, all over the world and especially here in the US, to prove - what? That they can? This is pure destructiveness.
- Sophia
January 14, 2013 at 2:57am
I have never expected anything else from them since Obama was first elected. They have not disappointed. Does Obama yet understand?
- roidubouloi
January 14, 2013 at 7:07am
As reported this weekend by the NYT and WP, many working Americans received their first paychecks for 2013 this past Friday and were surprised to discover that, contrary to what Obama promised, their taxes went up (and take home pay went down). I expect this to be big news in the coming weeks, weakening Obama's bargaining power even further. It may be difficult to believe, after the experience of 2009-10, that Obama would be over-confident again, but I fear that he is. I've commented many times that the Republican brand was so unpopular in 2008 that an African American or a woman could have defeated McCain. Indeed, an African American did! And then there's Romney. Good grief, he was so unpopular that Obama was re-elected with a solid majority, even though his signature achievement in his first term, ACA, was opposed by a majority of voters and unemployment was almost 8%, becoming the first Democrat to be elected to two terms with a majority of votes in each election for the first time since FDR. While I agree that the coin option was a distraction, maybe Obama needs a few distractions.
- rayward
January 14, 2013 at 7:45am
"While I agree that the coin option was a distraction, maybe Obama needs a few distractions." I bet a government shutdown initiated by the GOP House would be a nice distraction.
- wildboy
January 14, 2013 at 10:17am
Insofar as the past is the best, albeit imperfect, predictor of the future, Dems should indeed be worried about what BHO will do-- and not do. The voting public would not be amiss in holding both the Repubs and BHO responsible for an economic downturn or disasterous compromise should it occur as a result of a debt ceiling crisis. Too many Dems act as if BHO has had "no other options" for his performance and the lack of economic recovery these last four years. That is deluded thinking equivalent to TEA Partiers who insist it is all BHO's fault.
- drofnats1
January 14, 2013 at 11:11am
I am a lot more sanguine about this than most apparently. Finally, at long last, Republicans will have to explicitly spell out how they want to cut Social Security and Medicare to get their dollar for dollar cut. Even if they extort America into passing these cuts which will be massively unpopular with seniors they will be sealing their own doom as Democrats can then run explicitly against those cuts and promise to restore them in 2014. The overwhelming majority of the cuts will be back dated with just enough pain to make the elderly nuts. I think Republicans have really backed themselves into a corner now. Now maybe it is possible they truly are insane, they will demand repeal of Obamacare or other poison pills to drive us into default at which point we are pretty much boned because even if Obama minted the coin it still wouldn't prevent Republicans from shutting down government via the normal budget process. But I simply don't believe the entire Republican caucus is nuts. I predict the whole thing will be smoke and mirrors with tons of cuts backdated with a future Congress restoring most of the cuts except those parts that have genuine Democratic support.
- blackton
January 14, 2013 at 11:26am
Good riddance to the magic coin idea. It was a stupid, distracting idea.
- polcereal
January 14, 2013 at 12:26pm
...Obama is too "optimistic" about the GOP--and also, he certainly knows that he is expected to "blink first" (again), and he made that much clear during the last press conference of his first term....
- cdmcl3
January 14, 2013 at 12:45pm
Here's what I'm learning about what happens when you get really old and unable to care for yourself - and that's the time of life when Medicare/Medicaid bills explode: monthly care for a certain old lady with dementia is going to be $7500/month, since she apparently can't be home alone anymore. This lady is not wealthy. Once her money is gone this for-profit "home" will make an application to Medicaid. Note: an in-law of hers was kept alive at this "home" until age 106, unable to see, move, hear, sit up without assistance. Once you're signed into one of these places you're essentially their property. So: seniors need to consider this. Cutting benefits to people who can still enjoy life and be productive and also, part of the economy is wrong but is it right to balloon money at the very end of life in order to enrich a for-profit "nursing home"? I don't know I'm just asking. I suppose it makes one a "job creator." So I think we need a distraction because this whole business of making money from the old and sick, where you are literally a captive audience, is a problem not only for people who have money but, when the money runs out, for the state. Also if you aren't rich this will impoverish your heirs who are already getting old themselves and facing an increasingly uncertain and nasty future.
- Sophia
January 14, 2013 at 1:27pm
The whole debt ceiling/cliff stuff strikes me as a distraction from the amount of money we are continuing to spend on the Bush wars. How much is going to "contractors" in Iraq and Afghanistan? We are not just paying for soldiers and war materiel. This is highly profitable business and ranges from "security" to oil industry issues. Somebody please write a book about about this; talk about a redistribution of wealth. Who needs the Bolsheviks. Then the GOP has the nerve to complain about Social Security COLA's and health care for the poor, for women? I'd like to see some numbers: how much of the people's money has disappeared into the M/I complex since Bush was "elected?"
- Sophia
January 14, 2013 at 1:32pm
I don't think Obama is being "optimistic" about the GOP - rather, he is playing hard-nosed with them right now. "Optimistic" would the the Obama of 2011, who thought that he could bargain with Republicans the way he did in the Illinois State House and get some kind of big agreement on tax revenue, entitlements and overall debt. That blew up in his face in 2011 and he generally abandoned the tack until the election. It did come back, in a milder form, in the lame-duck talks dealing with the fiscal cliff (in the openness to raising the Medicare eligibility age and using Chained-CPI for Social Security COLA's), but liberals pulled him back. At this stage, I really don't see Obama being willing or interested in blinking on the debt ceiling, and liberals don't need to pull him away yet. To that end, platinum coins and unilateral 14th Amendment moves don't give the President leverage today, they take it away, but making the issue a Presidential power play rather than Congressional intransigence. Paul Krugman is a brilliant man and right on many, if not most, things concerning fiscal politics. But the man has no clues about political strategy and making decisions in an electorate that is less informed (and less enamored of him) than his blog readership. It behooves progressives to keep that in mind when evaulating his political, rather than his policy, recommendations.
- wildboy
January 14, 2013 at 2:48pm
Presumably after the debt ceiling is reached, the government will still have enough revenue coming in to pay most of its bills, but not all of them. One question is how it will prioritize which to pay. Will it pay the oldest first, so that the first month everyone (bondholders, contractors, employees, social security beneficiaries, etc.) will, say, get their checks a few days late, with the delay increasing as time goes by? Or will it favor some payees over others--which could create horrible political problems? Also I would expect there would be a series of lawsuits brought by those owed money. So perhaps the courts would end up deciding that Obama had the authority to pay the bills (under the 14th amendment, or the magic coin, or some other grounds) and order him to do so.
- brthompson
January 14, 2013 at 3:29pm
wildboy, I think Obama's "optimism" has evolved, but essentially, that he now still also thinks that somehow he can slake the GOP's thirst for moving from one crisis to the next--or until more people catch on to the confabulated for what it is. he knows that neither side in the current standoff can claim to know all the odds (unlike some on both sides who make such claims). very much depends on the fact that media have not really deconstructed various arguments well enuff to change diehard intent on drinking blood on their battlefields. i've been sampling the hard right media. so have Obama operatives.
- cdmcl3
January 14, 2013 at 4:58pm