Fund Your Utopia Without Me.™

08 January 2013

The Debt Ceiling, The 14th Amendment, "The D'Oh Coin!" & The Confederacy of Dunces







"D" doesn't stand for Democrats.  It stands for "D'Oh!" ... and dumb.


Supporters of this newfound presidential power over statute have been pointing to the 14th Amendment, specifically its fourth clause: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

The 5th Clause (actually, it is, specifically, called the Section 5 and the “Fourth Clause” referred to above is called Section 4) states: 


Section 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.


THE CONGRESS, not the President, not the Executive Branch, not the Treasurer, not the Treasury, not the Court, not the Judiciary…

The public debt is US debt held by the public, which as of this writing is $11,577,454,260,707.67. It is ONLY this debt that “shall not be questioned.”   Social Security, Medicare, payroll for the employees of the EPA, food stamps? None of those is considered “public debt.”


Debt Service:

December 2012: $95,736,594,801.52

November 2012: $25,068,968,472.99

October 2012: $12,922,741,407.27 

Total for first 3 months of FY2013: $133,728,304,681.78


($133,728,304,681.78: Proggies, that would pay for 1.3 years of food stamps for 50 million Americans, just so that you have an idea how much money we are wasting on debt service. The total in FY2012 spent on servicing the debt was $359,796,008,919.49. Imagine how much it will be in 2017, when Obama leaves office and the national debt is predicted to be, at minimum, $22 trillion. Heaven help us if interest rates go up).

In FY2011, tax revenues were a little more than $2.4 trillion. In February 2012, tax revenues collected were $103.4 billion. In March 2012, tax revenues collected equaled ~$171.2. Debt service in February 2012 was $17.4 billion and in March it was $24.7 billion. The same receipts are expected, at minimum, and outlays for debt service are about the same for February and March as they were last year. 

IN OTHER WORDS, WE CANNOT DEFAULT ON THE DEBT. BY LAW, THE FEDERAL GOVERNMENT MUST PAY THE DEBT SERVICE FIRST.

Axe asks:  "'Social Security, Medicare, payroll for the employees of the EPA, food stamps? None of those are considered “public debt.Explain plz."

No prob.  Public debt is that debt (Treasury notes, bonds) sold by the Treasury to the public (China, Japan, banks). It is NOT intragovernmental debt, such as the IOUs held in the “safety” of the Social Security Trust Fund. By law, public debt may not be questioned. Also, by law, intragovernmental debt may not be sold on the open market – and this is where the farce of the various Trust Funds comes into play.

Let’s take the Social Security Trust Fund. In 1937, the Supreme Court upheld the constitutionality of the Federal government’s ability to tax for the “general welfare” to provide for old age relief, ie, Social Security, in Helvering v. Davis, 301 U.S. 619. The Court also said that the proceeds of both the employee and employer payroll taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way. Nevertheless, a sort of fiction was set up where the SSA created a “Trust Fund” that “invested” payroll taxes in “securities” backed with the “full faith and credit of the United States” (IOW, treasuries). Because one government agency is purchasing securities from another, this is called “intragovernmental debt.”

Under the law of payments, debt held by the public – that is, treasuries held in the hands of the public – is secured (as well as it can be) and has priority over all other debt. It must be paid first. It also can be sold by the owner. For example, China can dump all of its US treasuries and there is nothing that the US can do other than warn how badly such a move might affect the global economy.

Intragovernmental debt, on the other hand, is not secured and is only payable as long as the Treasury has funds. By law, it CANNOT be sold on the open market. For example, let’s say that the government shut down for 6 months and there were not Social Security cheques. Unlike Goldman-Sachs, which COULD sell its treasuries, those allegedly fabu IOUs in the Social Security Trust Fund would…wait for…be worthless and remain in the Social Security Trust Fund. Even if the SSA remained open while the rest of the government shut down, IT COULD NOT SELL ITS INTRAGOVERNMENTAL DEBT ON THE OPEN MARKET. THOSE BLESSED IOUs IN THE SOCIAL SECURITY TRUST FUND ARE ONLY WORTH WHAT THE TREASURY IS ABLE TO PAY FOR THEM. They cannot be sold by the SSA outside of the government on the open market.




Why not dark chocolate coins?



As to the $1 trillion platinum coin, two articles from left and right that call out the Homer Simpsonites in the Democratic Party:



From The Right...

By Daniel Foster 


The United States Mint’s portfolio is broad and varied, to be sure. America’s penchant for numismatics and its insatiable appetite for tokens (as it were) of recognition for sundry groups mean that commemorative coins have been struck to honor everything from Girl Scouts to eaglet chicks to Olympic high jumpers. And this is no mere nickel-and-dime operation. For more than a century, the Mint circulated legal-tender “half-eagles,” “eagles,” and “double-eagles” in $5, $10, and $20 denominations, and it still strikes precious-metal bullion to store value. In the year 2000, the Mint even authorized 150,000 units of a coin commemorating the thousand-year anniversary of Leif Ericson’s discovery of the New World; minted in Philadelphia, the coin was denominated at 1,000 Icelandic krónur.

But as far as I know, neither the U.S. Mint nor the Bureau of Engraving and Printing, which handles paper currency, has ever produced tender denominated higher than the Woodrow Wilson–emblazoned $100,000 bills it used for internal transactions in the 1930s.

Speaking of the 1930s, the impending debt-ceiling battle (nota bene: if you’re confused over which pending debt-ceiling battle, please consult the publication date atop this article) has convinced some that the U.S. Mint, and a little-known provision in the federal code, could deliver President Obama from the House GOP.

As first noted by Yale Law School professor Jack Balkin, Public Law 104-208 allows that The Secretary may mint and issue bullion and platinum bullion coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

This implies that the president could theoretically order the striking of, for instance, a pair of trillion-dollar-denominated platinum coins, deposit them at the Federal Reserve, and use the new balance-sheet flexibility to pay the bills, neatly circumventing the need to win the acquiescence of the Republican House.

And some are arguing that this is precisely what President Obama should do. Josh Barro has laid out the most detailed game plan at Bloomberg. 


If Republicans start issuing a list of demands that must be met before they will raise the debt ceiling, Obama should simply say that he will issue platinum coins as necessary to pay government bills if he cannot borrow. But, to avoid causing long-term inflation expectations to skyrocket, he should pledge that he will have the Treasury issue enough bonds to buy back all the newly issued currency as soon as it is allowed to do so.

And then he should offer to sign a bill revoking his authority to issue platinum coins — so long as that bill also abolishes the debt ceiling. The executive branch will give up its unwarranted power to print if the legislative branch will give up its unwarranted restriction on borrowing to cover already appropriated obligations.

Joe Weisenthal got this right this morning: Hitting the debt ceiling isn’t an option. It’s no way to run the country, and Republicans know that. So, a debt-ceiling increase shouldn’t count as a “concession,” and it’s nutty for Obama to have to give substantive policy ground to get one. 


Of course, there’s a hitch or two in the plan to mint The Coin. For one thing, numismatizing the debt by striking trillion-dollar debt discs is not exactly what former representative Mike Castle (R., Del.) had in mind in 1995 when he introduced the legislation that turned into the provision in public law 104-208. Dylan Matthews of the Washington Post tracked down this “unsuspecting godfather” of the platinum gambit, and Castle confirmed as much. 


“That was never the intent of anything that I drafted or that anyone who worked with me drafted.” 

- Former Congressman Mike Castle, who drafted Public Law 104-208


Indeed, the legislation was designed to give the Treasury flexibility to create more affordable platinum coins for collectors.  To use that authority to backdoor the 17th and 18th trillion dollars of the national debt would be, according to Castle:



“so far-fetched and so black helicopter-ish a type of methodology of trying to resolve something like this that I think the public would totally scoff at it.” 


Some on the left understand this. Take, for instance, Kevin Drum of Mother Jones, who flatly titles a post on the subject “No, a $1 Trillion Platinum Coin Is Not Legal.” Drum, doubting there is enough of the requisite straitjacket brand of strict constructionism in the U.S. court system to uphold such a tortured reading of the statute, dismisses the ploy as “the kind of thing that Herman Cain would come up with” (the dreaded reductio ad Hermanum, a conversation-stopper in progressive circles).

Second, printing The Coin would send dark and foreboding economic signals. As Washington Research Group analyst Jaret Seiberg recently put it: 


The $1 trillion coin would expand the money supply by a considerable amount, which could spark serious inflation. And it seems like something out of a Simpson’s episode. So we are not even sure anyone would take this as an actual solution. All of this economic chaos could worsen the economic downturn, which would further weaken credit conditions and impose higher losses on banks. 


Its serious supporters think The Coin would work the same way a trillion dollars in Treasury securities does, except instead of moving paper to the Fed, the Treasury would move an ounce of the finest platinum, Pt-78. Never mind that if this is true, it’s unclear why the debt-ceiling statute doesn’t already cover such a transfer. It remains the case that, as Seiberg implies, the Fed would have to rationalize the money supply or risk inflation, meaning this is at best a kind of bee sting from the executive to the legislature — the kind of trick you can pull off only once.

Of course, by some accounts, the absurdity of The Coin solution is the whole point of it, a Swiftian modest proposal meant to put the Republicans off their intransigency. As Barro’s fellow platinum bug Timothy B. Lee put it on Twitter: 


“The stupid and harmful character of the debate is precisely why a gimmick is an appropriate solution.”


(**eyefuckingroll**) 

This is sorely misguided. I doubt there is a Republican on the House side of the Capitol who is kept awake nights fretting over how bad it will be for the party if the president puts twelve zeros on a fancy nickel and uses it to pay for green-energy subsidies. If the president minted The Coin, it might win him a few cheers from the same folks on the professional left who have called him a wuss for four years. But it would convince just about everybody else that he’s back on the Choom Gang. That’s why it won’t ever happen unless the luck of the GOP is as good in 2013 as it was bad in 2012.

Of course, there’s a tongue-half-in-cheek character to the calls to mint The Coin. But the half of the tongue not in the cheek suggests that the ploy’s proponents are missing the obvious in the debt-ceiling debate. On the one hand, there is no compelling reason to think that the GOP will let the United States default. It didn’t in 2011, and it won’t in 2013. Moreover, the fiscal-cliff deal and Sandy-relief bill have shown that Speaker Boehner is newly willing to let Nancy Pelosi provide a bulk of yes votes on urgent matters.

On the other hand, the House Republicans want spending cuts, and the debt ceiling is the nearest and biggest lever. It’s in their interest to maximize political uncertainty ahead of the deadline. After all, it makes no sense for the White House to make any concessions to the Republicans if it knows the GOP won’t allow default. It’s called chicken, and its older than dirt, never mind platinum. If you’re sure the other guy will swerve, you don’t yield an inch; and if you’re sure he won’t, you don’t play the game. That the White House is playing the game once again is evidence that the GOP has hit the credible-threat sweet spot. Combined with the fact that raising the debt ceiling is even more unpopular than raising taxes on the middle class, the Republicans might not get much, but they’ll get something.

The pundit class might find this frustrating, but given the legal, economic, and political risks of its preferred alternatives, President Obama is better off minting a pair of wishing coins and tossing them into the Capitol fountain. 

— Daniel Foster is news editor of NRO.







From The Left... 


No, a $1 Trillion Platinum Coin is Not Legal 


By Kevin Drum

For some reason, the possibility of evading the debt ceiling by minting a $1 trillion platinum coin is getting some blogospheric love again. This is based on a 2000 revision to the U.S. statute on money and finance that reads: 


The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time. 


Read literally, this places no limitations on the Treasury Secretary's authority to mint platinum coins. If Tim Geithner wants to mint a $1 trillion coin and deposit it at the Fed, he can do it.

I would just like to point out, once again, that this is ridiculous. During the very short floor debate on this amendment it was repeatedly referred to as a "technical correction," and that's obviously what was intended. Oklahoma Rep. Frank Lucas described it this way: 


Also contained in the bill is a clarifying section inserting the word ‘‘platinum’’ inadvertently dropped when Congress authorized production of platinum and platinum bullion coins a few years ago....This is a small bill, but important to the mint and important to coin collectors. It has no cost implications whatsoever. 


No particular restrictions were placed on the design or issuance of platinum coins, but this paragraph was plainly intended to apply to bullion and commemorative issues for coin collectors. That's all. 

There is, apparently, a widespread belief that courts will uphold a literal, hyper-technical reading of legislative language regardless of its obvious intent, but I'm quite certain this isn't true. Courts are expected to rule based on the most sensible interpretation of a law, not its most tortured possible construction. I don't think there's even a remote chance that any court in the country would uphold a Treasury reading of this law that used it as a pretense for minting a $1 trillion coin. 

I am, obviously, not a lawyer. So if someone with actual legal training in the appropriate area of the law says I'm wrong, then I guess I'm wrong. But I'm not much afraid of that happening. This whole notion is the kind of thing that Herman Cain would come up with. It's time to stop treating it seriously. 



SoRo:  If the implications, short- and long-term, to the economy, the dollar, the country’s political system, and its standing in the world were not so serious and utterly unpredictable to the point that one can honestly say that a single $1 trillion coin could crash the economy, destroy the dollar, and ultimately trigger a revolution in this country, I would be tempted to say:


“You go, Boy!”


(Yes, I said “boy” at the end of that so there is no need for Dowderisation, but before the “That’s RAAAAAAAAAACCCCCCCCCCIIIIIIIIISSSSSSSTTTT!!!!” deluge, it is not a comment ripped from the pages of Uncle Tom’s Cabin or Gone With The Wind.  It is merely a play on “You go, Girl!” words.   Certainly, we should be able to do that when the President is a man, regardless of the colour of his skin.)

After the 2012 elections and (idiotically-named) Fiscal Cliff “win” where in Obama forced a minority of Republicans in the House of Representatives to raise taxes on 77.1% of Americans, doing something this utterly braindead, boneheaded, and Banana Republicanistic will make Speaker John Boehner cry…WITH JOY. 

wolly asks:  "Is there ANY case law on this at all?"

As to your question, not completely on point (of course, we’ve never had anyone propose to mint a $1 trillion coin out of thin air either), but Perry v. United States, 294 U.S. 330 (1935), makes it clear that it is CONGRESS’ power, not the President’s power to borrow money on the credit of the United States, etc.

As a reminder of where we are going and what your captain thinks….








"At one point several weeks ago," Mr. Boehner says, "the president said to me, 'We don't have a spending problem.’ " 

Mr. Boehner says that after he recovered from his astonishment—"They blame all of the fiscal woes on our health-care system"—he replied: "Clearly we have a health-care problem, which is about to get worse with ObamaCare. But, Mr. President, we have a very serious spending problem." He repeated this message so often, he says, that toward the end of the negotiations, the president became irritated and said: "I'm getting tired of hearing you say that."


3 comments:

steveegg said...

Minor point of order on the "Trust Funds are not public debt" argument - In the context of where that "not earmarked in any way" phrase appears in Helvering, it only speaks to the intake of the FICA/SECA tax.

The creation and funding of the original "Old-Age Reserve Account" (which applies to the succeeding "Trust Funds" as the FICA/SECA "donations" are really transfers of general funds equivalent to the amount of FICA/SECA taxes received) is addresssed after that point in the decision, and held to be Constitutional.

The decision is further silent on the applicability of the "full faith and credit of the United States" to special-issue Treasury securities issued only to the Reserve Account/Trust Funds.

The fact that the securities held by the "Trust Funds" are not marketable does not reduce the Treasury's absolute obligation to service, and upon maturity, pay off the securities within the limits of the debt ceiling. Indeed, because current law requires the Treasury to pay face value (plus accrued interest) if a particular "Trust Fund" wants to redeem a security early, it is more of a threat to federal fiscal stability than Red China dumping its Treasury holdings on the open market.

Predictable-History said...

"Minor point of order on the "Trust Funds are not public debt" argument - In the context of where that "not earmarked in any way" phrase appears in Helvering, it only speaks to the intake of the FICA/SECA tax."

They are not included in the official public debt outstanding figure by the Treasury.

"The creation and funding of the original "Old-Age Reserve Account" (which applies to the succeeding "Trust Funds" as the FICA/SECA "donations" are really transfers of general funds equivalent to the amount of FICA/SECA taxes received) is addresssed after that point in the decision, and held to be Constitutional."

I understand that, but don't believe that it is relevant to the public debt definition since the sum is presently excluded given that the Trust Fund-held treasuries are intragovernmental debt.

"The decision is further silent on the applicability of the "full faith and credit of the United States" to special-issue Treasury securities issued only to the Reserve Account/Trust Funds."

The Fourteenth Amendment will not get Obama around this. There is NO contractual obligation assumed by the government to pay Social Security or Medicare benefits. You can pay into both programmes for 40 years and you still do not have a right, contractual or property, to either and the government can deny benefits as it sees fit. See: Flemming v Nestor and Heckler v Ringer.

"The fact that the securities held by the "Trust Funds" are not marketable does not reduce the Treasury's absolute obligation to service, and upon maturity, pay off the securities within the limits of the debt ceiling. Indeed, because current law requires the Treasury to pay face value (plus accrued interest) if a particular "Trust Fund" wants to redeem a security early, it is more of a threat to federal fiscal stability than Red China dumping its Treasury holdings on the open market."

As it pertains to intragovernmental debt, I think that the question is unsettled regardless of what the law might currently say. It has never been tested to my knowledge although I am researching the matter. I know from the Gold cases that Congress can rewrite contracts and securities that it has issued when necessary, as it was during the Great Depression in the opinion of the government.

I think what I am really getting at is that is, when the money is gone or reduced, it is gone/reduced and there is nothing much anyone can do about it. The Constitution requires that the debt be serviced. This requires that the public debt be serviced first. Social Security, etc, is an afterthought.

At some point, you wind up as Greece. You have to pay the bankers and, if there is no Germany to bail you out, then priorities have to be made. I think that this is the bottom line and what I think people need to remember. Gimmicks like minting a $1 trillion coin will just, ironically to Proggies, speed us up on the Road to Athens.

steveegg said...

I think we're talking a bit past each other on the finer details, but we agree on the end results. We on this side of the Pond are definitely speeding toward Greece - I happen to think we're going there at 1,630 mph instead of 1,160 mph. Either way, there will be only pulverized material at the base of the cliff.

Intragovernmental debt only "doesn't matter" from a Treasury point of view if either it keeps growing or there is a sufficient budget surplus to pay the amount being redeemed/not re"invested" off. Unfortunately, though interest is barely allowing OASI (and some of the other smaller "trust funds") to keep growing at the moment, virtually all of the intragovernmental debt will need to be paid off in the next 20 years given current spending policy. Since there won't be budgetary surpluses, it will need to be either converted to publicly-held debt or inflated away through money-printing/money-coining.

Yes, there is no right to SocSecurity or Medicare (specifically Part A), and indeed they need to go away, but which politician wants to be the guy who took it all away?

Back to the debt-ceiling, one could make the case for exempting intragovernmental debt. I wouldn't be buying it, but then again, I'm not one of the 536 whose opinions matter. The ugly news - the politicians will be arguing about raising the ceiling again during the 2016 election season.