There is an old joke that isn’t really very funny, but sometimes apropos for a situation. Goes like this. A student is taking an oral exam for his military science course. There isn’t a single question he can’t answer. The teacher – a gruff old military type – is trying to trip him up and turns to the area of tank desert warfare.
Teacher : How would you attack a well-defended entrenched enemy?
Student: Of course, we’d just leave it there, and go on to the next critical location in the enemy’s line, laying siege to them later when they are isolated and cut-off.
Teacher (it’s getting personal now): What would you do then, when my swift destroyers come up and challenge your tanks’ bypass?
Student (immediately and more confident than ever): Why, of course I would sink your destroyers with my escort of submarines.
Teacher (barely contained wrath): Where in the desert would you get
submarines?
Student (smugly): Surely, sir —
the same place you got your destroyers. [7]
Is the joke silly? Yes. Yet, apropos, in the context of the food-fight over the United States’ legal debt limit. The debt limit is non-constitutional and silly. In this (gasp!) I agree with Paul Krugman and Timothy Geithner – and THAT probably isn’t going to happen very often. And in this silliness, one silly idea leads to an even sillier idea. Or: fight silly with crazy.
The debt limit is non-constitutional[*] because the structure of the US Constitution is such that (1) the congress legislates laws, and then (2) the president executes those laws. Specifically Article 1 of the constitution gives taxing and spending legislative authority to the congress, not to the president. The president may veto those acts, but not otherwise vote on them. The president – and his staff, which includes the Secretary of the Treasury – is assigned the responsibility to execute those laws, not the congress.
By repeatedly authorizing far more spending than taxation without also authorizing the president and our national check-writer to borrow is akin to declaring war on Japan and Germany in December 1941, but not authorizing the use of bullets, planes, bombs, … Or worse, while de-authorizing the draft.
The setting of a debt limit by congressional legislation does achieve two non-constitutional objectives. The first is practical, but it is also painful and leads to the second reason. The second reason is dreadful, embarrassing and unpleasant.
The first reason: it forces legislators to have a very public discussion on government debt. It’s a sort of conversational stimulant. As a consequence of the last “discussion” in the summer of 2011, Standard & Poor’s (S&P) — one of the world’s three largest credit rating agencies — saw fit to lower the nation’s credit rating on account of the lively, acrimonious and unproductive conversation; at that time congress put into motion the machinations that would eventually lead to the occasion of the recent so-called “fiscal cliff” of January 1, 2013. Ever so tactful of them that this date fell just after the election.
(I wouldn’t put much weight into S&P’s opinions: they had high credit ratings for Enron until two weeks before their demise, and high ratings for firms like AIG, right up to the 2008 economic collapse).
The second thing the legal debt limit does is afford grandstanding politicians the opportunity to score cheap political points. During a debate on raising the limit way back in 2006, when Presiden George W Bush needed the debt limit raised, we heard this from the Senate floor:
“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”
By now almost everyone knows those words were spoken by a strutting, cocky, self-assured junior senator set on self-aggrandizement named Barack Obama.[8] Undoubtedly, as we approach yet another in a series of ever increasing debt limits, the same sort of puffed-up skullduggery will be paraded out onto the floors of the Senate and House of Representatives.
The 14th Amendment makes reference to the validity of public debt. But it is ambiguous. The historical context was that the government would have large financial responsibilities at the end of the Civil War (reconstruction, societal integration of former slaves, paying back loans taken to fight the war). They didn’t want the debt required to pay those bills to be questioned. It states: “The validity of public debt of the United States … shall not be questioned.” [2] It also says that debt shall be “authorized by law”; but if congress legislates the expenditures, does that not effectively also “authorize by law” any debt that must obviously follow?
The legal debt limit is a bad idea that is non-constitutional and provides yet another opportunity for unnecessary hot air blowing and grandstanding. To avoid taking the debt problem head-on requires a flanking maneuver, and that brings us to a truly creative “crackpot idea.” That’s where the desert submarine comes in; or in this case The Trillion Dollar Coin.[3]
The idea, which seems to be constitutional, is this: The treasury mints a beautiful coin of platinum and declares it to be worth one Trillion Dollars (that’s $1,000,000,000,000.00) — it need not be a large sized coin, but that would certainly add to its credibility. [9] [10] The coin is then put on deposit with the Federal Reserve Bank. The coin serves as collateral, against which the government can borrow without technically raising the debt. In effect, the Fed – which can create virtual money by fiat – “buys” the coin for One Trillion Dollars. Voilà! Debt limit avoided.
Nobel Prize winning Economist Paul Krugman is not one to pass up the chance to raise or promote crazy ideas if they support his position. For instance, in August, 2011, he only half-jokingly espoused the idea of proclaiming that there is an imminent alien invasion (truly alien, as in, from another planet – think Independence Day, the movie here). [4] This would spark all sorts of spending and no one would care how much.
Krugman is the most outspoken Keynesian of our time. Simplified for him it’s: “Spend, spend, spend. Spend some more. Borrow like there’s no tomorrow. And it’s the government’s job to do all that spending … until someone else does.” I disagree with Krugman on that point. [See then-Senator Obama’s comments above about burdening future generations.]
However, I do agree with Krugman’s belief that the legal debt limit is not required by the constitution. Although I disagree with him on not taking the problem head-on, I’m intrigued by his eagerness as an economist to support the idea of “The Trillion Dollar Coin” to get around it. The enthusiasm was joined by quite a few people in our government [5], including members of congress
and Treasury officials. There were reports that President Obama supported it too, but I think he’s too wily to ever have whispered those words.
Just last week though, the One Trillion dollar coin was ruled out by the Fed. This verdict was then backed up by the chief check writer, Timothy Geithner — who is counting down the days until his term as Treasury Secretary ends … praying and hoping that the end comes before the next “cash crunch shootout at the OK corral” over the debt limit. Which should be in about 4 to 6 weeks.
I’m disappointed. I would love to have seen a showdown over “the coin.” And whose image would be on it. Bernanke? Obama? Maybe George W Bush?
So what’s more outlandish? A submarine in the desert used to fight conjured up cruisers? Or a coin worth One Trillion dollars to negotiate around a debt limit that congress has already authorized de facto by legislating more spending than taxing? I guess we’ll never know the answers to some things.
peace,
Joe Girard © 2013
Comments welcome at joe@girardmeister.com
Other essays here, at essays
[*] Author note: I have been careful to use non-constitutional instead of unconstitutional. The latter refers to actions that are forbidden (either explicitly or by supreme court ruling) by the constitution. The former refers to actions that are not assigned or specified by the constitution, but may be permitted – constitutionally speaking. The author does not presume to have the legal knowledge or standing to make the a call on such subtle things that may be unconstitutional, or not – but he reserves the right to his own opinion on such matters.
Another fun little read on the big coin here: http://swampland.time.com/2013/01/04/the-weird-resonance-of-mintthecoin/#ixzz2I2iB9lHy
Bibliography:
[1] Trillion Dollar Coin (finally) ruled “out”:
[1a] http://www.politico.com/story/2013/01/treasury-says-no-to-trillion-dollar-coin-report-86091.html
[1b] Fed kills the coin: http://www.businessinsider.com/the-fed-killed-the-trillion-dollar-coin–and-thats-slightly-disturbing-2013-1
[2] Section 4; 14th Amendment to the US Constitution.
[3] Trillion Dollar coin called “crackpot idea” by The Economist: http://www.economist.com/news/finance-and-economics/21569413-crackpot-idea-circumvent-americas-debt-ceiling-gains-currency-toss-coin
[4] Krugman proposes fake Alien Invasion to spur government spending: http://www.huffingtonpost.com/2011/08/15/paul-krugman-fake-alien-invasion_n_926995.html
[5] Serious believers in Trillion dollar coins in gov’t: http://www.capitalnewyork.com/article/politics/2013/01/7071045/trillion-dollar-coin-idea-takes-and-former-head-us-mint-doesnt-see-
[6] Krugman supports the Trillion Dollar coin: http://www.huffingtonpost.com/2013/01/07/paul-krugman-trillion-dollar-coin_n_2427160.html
[7] Story loosely based on Rommel’s bypassing of Tobruk in the battle for North Africa, returning later to lay siege after it was cut off; here and many other sources.
[7a] Kirkland, Donald E., Maj, “Rommel’s Desert Campaigns, Feb 1941-Sept 1942: A study in Operational Level Weakness”, School of Advanced Military Studies, US Army command and General Staff College, Ft. Leavenworth, KA, http://www.dtic.mil/dtic/tr/fulltext/u2/a174165.pdf
[7b] Manchester and Reid, “The Last Lion”, vol III
[8] Barack Obama, Senate Speech, 6 March, 2006: http://www.snopes.com/politics/obama/debtlimit.asp
[9] Congress has power to mint coins, US Constitution, Article 1, Section 8. They can authorized treasury (i.e. the administration) to do this by legislative act. Germane to this discussion, they authorized minting coin of “any variety” below in [10]
[10] Congress delegates authority to US Treasury to mint platinum coins of any value. H.R. 2614 (1995); Commemorative Coin Authorization and Reform Act of 1995, Text: “Notwithstanding any other provision of law, 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.”
