United States Note by Wikipedia Commons
Possible Trillion Dollar coins by Washington Post
Well, we narrowly escaped a debt default...again. But like the Terminator, the debt ceiling will be baaaccckkk... It'll be back in January, in fact. so, it's worth reviewing the president's true options before then.
The following article was published last January, when it seemed like we were last going to hit the debt ceiling. I wish things had changed so that this article was dated and obsolete, but alas, here we are again. This is in spite of increasing evidence that the Founders believed the national debt should be paid, always and completely.
Others have testified before Congress that the president does not have the authority to violate Congress' debt ceiling, but this analysis is incomplete.
The only things that have changed is that there are now even more commentators insisting that the president has options to defeat a recalcitrant, dysfunctional, contradictory, Congress that may, in a matter of days, violate the constitution by not providing the means necessary to pay the country's existing bills. However, the president (and not Congress) is ALREADY violating the constitution by subverting the will of Congress in paying for some authorized things and not others, and needs to stop immediately, before his credibility is eroded even further by nit-picking, sound-biting, Congressional Representatives who stage photo-ops at closed WWII memorials, while allowing children on food stamps to go hungry off camera.
Whether it is with a Trillion Dollar Coin - or, as Joe Firestone has recently suggested, in an over-reach that borders on the ridiculous, while still being technically legal, a $60 Trillion dollar coin - or, as more reasonably suggested more recently by Rep. Alan Grayson but originally by former Representative Ron Paul, simply canceling $2T of the Fed-held debt we owe to ourselves, the president has several good and perfectly legal options.
For more details on other options and their justification, even necessity, read on....
From January, 2013
While it looks as though the Republican-controlled Congress will back down and postpone the debt ceiling for at least three months, and then take a self-imposed pay freeze if no budget is approved after that (undoubtedly a much more popular option among voters who give Congress just a 14% approval rating, near the lowest in history, 10%, measured just last August - despite being in violation of the 27th Amendment prohibition against any law that increases or decreases the salary of members of the Congress from taking effect until the start of the next set of terms of office for Representatives), this represents yet another in a series of lost opportunities for our DINO president.
The joke of the self-imposed debt ceiling is that it has been raised dozens of times since first being self-imposed in 1917, making the "ceiling" more of the "next floor in the debt tower." (UPDATE - a recent NY Time editorial makes it clear that the president can just ignore the ceiling altogether: click here). The newest proposal to go under the ceiling is a trillion-dollar coin (TDC). This is a workable, if guffaw-inducing, somewhat wonkish, solution to the problem. Support has come from Paul Krugman, ex-regulator of the 1990s S&L crisis Bill Black, Blogger Joe Firestone, Economist Dr. Michael Hudson, MMT co-founders Randall Wray and Warren Mosler, Ellen Brown, former head of the US Mint and co-author of the platinum coin law, Philip Diehl, Representative of NYC's 10th congressional district, Jerry Nadler (I spoke to Nadler recently at a political gathering and explained why Greenbacking would be an even better idea -- see below), and many others. There is a loophole in the commemorative coin Act of 1982, which allows coins of any amount to be minted, even though the rest of the act preventing coins from being minted in other amounts is certainly unconstitutional and not even practiced. We have had commemorative coins worth thousands of dollars in the recent past, well after the 1982 act, in fact. Commemorative coins have been quite a lucrative sideline for the mint, generating millions in seigniorage (the face value of a coin minus the cost of producing it) value for our Treasury. This is very much what the practice of creating commemorative coins was intended to do, and should put to rest the obsolete and fallacious argument that face value of coins has anything to do with their inherent value.
The coin would be issued by Treasury, and under the coinage act of 1792, and many revisions beyond, we don't have to pay a private bank for the "privilege" (read: RIGHT) to make coins (thank goodness). What this would do, of course, and what terrifies the banks, is to show how money is actually created, why we can't "run out of money" and why the private central bank or its member banks should not have a monopoly to "coin Money." Article 1, Section 8 of the Constitution gives that power to Congress, and never mentions banks. Plus it would show that wealth inequality is a result of a money monopoly, not because those with all the money are so "smart" or "productive." They are mostly neither of those things, just in the rent-seeking class, able to extract wealth from the productive class through legal and financial manipulation, while doing nothing productive themselves.
Furthermore, some form of direct money issuance by Treasury is actually REQUIRED constitutionally, when Congress blocks the funds necessary to pay for what it has already approved. From Article 12, Section 9, clause 7:
"No Money shall be drawn from the Treasury, but in Consequence of Appropriation made by Law; and a regular Statement of Account of the Receipts and Expenditures of all public Money shall be published from time to time."
The president, and certainly not the Treasury Secretary, doesn't have the authority to pick and choose what to spend an insufficient supply of funds upon. The executive branch cannot choose a bit from column A and a bit less from column B and so on. It must spend 100% of the authorized amount for repayment of the debt, just as it spends 100% for the military, Social Security, the highway system, and so on.
The president must spend what he has available, and if prevented from borrowing, either direct Treasury to issue a TDC, or direct Treasury to issue debt-free U.S. Notes (aka Greenbacks) to pay everything BUT the debt. By law going back to the original legal tender act of Lincoln, Greenbacks cannot be used to pay down the federal debt, but they CAN be used to pay all other outstanding debts for goods and services, leaving the rest of the Federal Reserve created money to pay down the debt. This legal enjoinment is undoubtedly unconstitutional, but instead of challenging it, the president should go along with it and use the new Greenbacks to pay for Social Security, infrastructure, and any other expense that cannot be met with an insufficient supply of money available under the debt ceiling. In short, if Congress will not allow the money to be created, the president should do it himself.
In fact, it is the executive branch, whether the president or the Treasury, and not Congress, that is in violation of the Congress' authority under the Constitution to "tax, borrow and spend." The executive branch does not just have the "authority" to execute the will of Congress to spend on thing Congress has mandated, it has the requirement to do so.
What other support for this alternative does the Executive have when Congress has imposed an artificial debt ceiling preventing the Executive from spending to fulfill Congressional requirements, or, more accurately, those requirements that have ALREADY been met but simply not paid for (a violation of contract law with every vendor that is "stiffed")? Well, the requirement to pay the debt under the 14th Amendment has already been much discussed.
- Amendment XIV, Section 4. 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. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
- Amendment XIV, Section 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.
However, completely unmentioned is a much older precedent set forth in the Constitution's original Article VI which says:
"All Debts contracted and Engagements entered into, before the Adoption of this Constitution, shall be as valid against the United States under this Constitution, as under the Confederation."
That is twice, once immediately after the Constitution was adopted, and again, after the divisive Civil War, that the American government has specifically promised to repay its debts in the constitution, a continuing document of rights and obligations, even at a time when debts were more onerous than now. This is a pretty clear precedent.
At the height of the Civil War, when the NY banks wanted 24-36% interest on loans to the U.S. Government, president Lincoln, and the then Treasury Secretary Salmon P. Chase, created United States Notes, directly from Treasury, debt-free, with (after the first year) no redemption in species (gold) but simply as money. The principal need not be repaid, and never specifically has been, despite a SCOTUS 8-1(!) ruling in 1884 in Julliard v. Greenman that this was only allowable under the "borrowing clause" of the constitution.