WASHINGTON – The Treasury Department will not mint a trillion-dollar platinum coin to get around the debt ceiling. If it did, the Federal Reserve would not accept it.
Anthony Coley, a spokesman for the Treasury Department, said Saturday, “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,” thereby averting a battle with Congress over government borrowing.
Some of President Barack Obama’s liberal allies have been promoting the coin strategy.
The government has reached its $16.4 trillion borrowing limit. By late February or early March, Treasury will run out of ways to cover debts and could begin defaulting on government loans.
White House spokesman Jay Carney says Congress has two options at its disposal: either pay the tab for its spending or send the U.S. into default, which would have serious economic consequences.
The inclusion of the Federal Reserve in Coley’s statement is significant. For the platinum coin idea to work, the Federal Reserve would have to treat it as a legal way for the Treasury Department to create currency.
If the Fed would not credit the Treasury Department’s deposit, the platinum coin would be worthless as legal tender.
The idea of minting a platinum coin to bypass the debt ceiling comes from a few sentences tacked onto the 1997 Omnibus Consolidated Appropriations Act.
“Notwithstanding any other provision of law,” it reads, “the secretary of the treasury may mint and issue platinum coins in such quantity and of such variety as the secretary determines to be appropriate.”
The author of those sentences was Rep. Michael Castle. The intent was to help coin collectors who wanted the Treasury Department to mint affordable coins from platinum, which in 1997 sold for between $350 and $500 an ounce.
“They wanted the flexibility to put in smaller coinage so that people could collect them,” Castle told The Washington Post’s Wonkblog this month.
But in giving the Treasury Department the flexibility to mint platinum coins of lesser value, Castle accidentally gave them the flexibility to mint platinum coins of unlimited value.
“That was never the intent of anything that I drafted or that anyone who worked with me drafted,” he said.
The idea of minting a trillion-dollar platinum coin was first floated in May 2010 in the comment section of the Center of the Universe, a blog devoted to modern monetary theory. The author was a lawyer writing under the pseudonym Beowulf.
“Curiously enough,” he wrote, “Congress has already delegated to (Treasury) all the seigniorage power authority it needs to mint a $1 trillion coin (even numismatic coins are legal tender at their face value and must be accepted by the Federal Reserve) — the catch is, it’s gotta be made of platinum.”
The platinum coin idea gained some powerful adherents during the debt-ceiling crisis of 2011, but it really gained traction following the 2012 “fiscal cliff” deal as politicians and economic writers realized that the country would 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. Jerrold Nadler, Nobel Prize-winning economist Paul Krugman and former U.S. Mint Director Philip Diehl gave it further legitimacy.
But others 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 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.
Nevertheless, many top Democrats believed that the White House needed a fallback option. Former President Bill Clinton said that if he were in office, he would invoke the 14th Amendment to call the debt ceiling unconstitutional “without hesitation, and force the courts to stop me.”
On Friday, Senate Majority Leader Harry Reid and his leadership team sent Obama a letter urging him to “take any lawful steps to ensure that America does not break its promises and trigger a global crisis — without congressional approval, if necessary.”
This is the second time that the Obama administration has ruled out a possible end run on the debt ceiling. In December, Carney said, “This administration does not believe the 14th Amendment gives the president the power to ignore the debt ceiling — period.”
The administration’s position is that raising the debt limit is Congress’ responsibility until the day that Congress votes to make it the White House’s responsibility, which is a resolution the Obama administration would happily accept.
Until then, White House officials say, they will not negotiate over the debt ceiling, and if congressional Republicans attempt to use it as leverage, the consequences will be theirs to bear.