Asymmetrical Information - Megan McArdle

01.07.13

Should the President Mint a $1,000,000,000,000 Platinum Coin?

An end run around GOP obstruction—and the law.

Not with his own delicate little hands, of course.  But could he order the treasury to do so? A little known provision of the law gives the treasury the right to mint platinum coins in any denomination.  And with the debt ceiling once again looming, some are saying Obama should be prepared to mint a $1 trillion platinum coin, deposit it at the Fed, and use the proceeds to fund the government if the Republicans will not cooperate.  

The simple elegance of the idea is attractive.  And it's certainly a lot of fun for economic pundits to speculate about the effects.  

Will it be inflationary? Depends on whether the Fed decides to step in an add a bunch more government bonds to its portfolio in order to mop up the extra money this will slosh into the system.  

Do we have enough platinum? Yes, if you assume that the face value can be greater than the weight of the platinum in the coin.  

Will the courts allow it to stand?  Unclear whether they would go along with such a hypertechnical reading of a statute that was clearly aimed at minting coins for collectors, not bill-paying.  But it would be interesting to see how the court split--a lawyer who litigates against the government a lot pointed out to me last week that the conservative justices on the Supreme Court are generally the most likely to hold up their hands and say "not my job to figure out what the drafters were really thinking; I'm going with what's written down here on the paper."  

He argued that it's not even clear who would have standing to sue, besides members of Congress.  And if Congress sued, that would escalate this to the level of a constitutional crisis--one that the courts might not want to get in the middle of.  

Hashing all this out is hours of fun for the entire pundit family.  

That said, I'm pretty skeptical that this will even be considered by the White House, precisely because it would elevate the current standoff into a constitutional crisis.  That would pretty much end any hopes the White House has of getting any further legislation passed for the rest of Obama's term.  

Now, you can argue that it's hopeless anyway, that the GOP is simply too inalterably opposed to letting the president have his way on anything.  I think this underestimates the GOP's motives--the obstructive minority within the party seems to me to be quite sincere, if completely wrongheaded, in their belief that the country is better off without a higher debt ceiling.  But it doesn't necessarily underestimate their intransigence on the legislation that the president would like to pass, so fair enough: maybe he might as well go to the mat.  

But I think--and I assume the White House does as well--that there's a substantial risk that this sort of nominally-legal-but-obviously-tendentious reading of the law would trigger a selloff in US bonds.  Minting a $1 trillion coin neatly end-runs GOP obstructionists, but only by proving that the president himself has little respect for the institutional restraints on his office.  So while the pundit in me is eager to see how this would play out, the US citizen in me is afraid of the effect that this would have on my country.  I assume that our president shares these sort of concerns.  

So I'm pretty sure that this is not a real policy option.  But it's certainly an interesting way for the commentariat to pass the time.