Tim Geithner and Ben Bernanke have put the kibosh on the whimsical/embarrassing idea of having the Treasury Department mint a trillion-dollar platinum coin to get around the debt ceiling. And even if Treasury did, it looks like the Federal Reserve wouldn’t accept it. This from opinion columnist Ezra Klein at The Washington Post:
That’s the bottom line of the statement that Anthony Coley, a spokesman for the Treasury Department, gave me today. ”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,” he said.
As Klein adds, the Obama White House has already ruled out a possible end run on the debt ceiling. Back in December, Press Secretary Jay Carney said, “This administration does not believe the 14th Amendment gives the president the power to ignore the debt ceiling — period.”
The sudden end of the Mint the Coin movement isn’t really surprising. The move would have forced the Fed to react to Treasury’s coin minting, threatening the central bank’s independence. As the WaPo’s Neil Irwin tweeted, “Fed would have faced both a threat to its primacy over monetary policy and been at the center of a constitutional showdown, all at once.”
Financial absurdities aside, it would have been a political loser for Team Obama, making the president look desperate for any option to avoid cutting spending in return for a congressional debt limit hike. It would have been Obama, not House Republicans, seeming unreasonable as the debt ceiling approaches.
Unfortunately there are still plenty of goofy ideas on the table, such as issuing Monopoly money in lieu of actual new greenbacks. As law professor Edward Kleinbard wrote in The New York Times earlier in the week:
[President Obama] should threaten to issue scrip — “registered warrants” — to existing claims holders (other than those who own actual government debt) in lieu of money. Recipients of these I.O.U.’s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.As He should threaten to issue scrip — “registered warrants” — to existing claims holders (other than those who own actual government debt) in lieu of money. Recipients of these I.O.U.’s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.
But that’s not all. Economist Stephen Williamson has cooked up another couple of options for Team Obama:
1) The off-balance-sheet option: Fannie Mae became a private institution, and Freddie Mac was established, as part of a Johnson administration move to take the mortgage market activities of Fannie Mae off the federal government’s balance sheet. Suppose that Fannie Mae were to issue agency securities and use the proceeds to pay salaries at the Pentagon, or Pentagon employees were to temporarily become employees of Fannie Mae. Currently under government “conservatorship” Fannie Mae has to do what the federal government tells it to do, but its agency securities are not part of the government debt for accounting purposes.
2) The playing-card or clearinghouse certificate option: Federal government departments could issue their employees certificates promising payment in the future, in lieu of salary. I’m not sure what makes a government debt obligation fall under the debt-ceiling limit, but the idea would be to design the IOUs so that they don’t meet those criteria. Like the playing cards and clearinghouse certificates mentioned above, there’s nothing to stop people accepting these IOUs in exchange.
Better to just raise the debt ceiling and come to an agreement on at least some entitlement reform and other spending cuts.