In a recent blog post, The New York Times' Paul Krugman urges President Obama to go ahead and mint the trillion-dollar platinum coin to prevent Congressional Republicans forcing the US economy into a default crisis by refusing to lift the debt ceiling.
Krugman argued in his recent NY Times blog post: "Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous."
According to Digital Journal, the idea that Obama should mint a trillion-dollar coin to solve the debt-ceiling crisis has gained popularity on financial blogs recently.
Republicans are demanding major spending cuts in exchange for raising the debt-ceiling, but in the standoff the country faces the risk of a default crisis.
Krugman accuses Republicans of "openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can’t pass through normal constitutional processes."
He writes: It’s easy to make sententious remarks to the effect that we shouldn't look for gimmicks, we should sit down like serious people and deal with our problems realistically. That may sound reasonable — if you've been living in a cave for the past four years. Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous — far more ridiculous than the notion of the coin."
The trillion-dollar platinum coin debate:
Digital Journal reports that financial blogs are urging the Obama administration to exploit a section of the law that specifically empowers the Treasury to create platinum coins of any denomination. According to the suggestion, the Treasury deposits the coin in its account with the Federal Reserve and rather than government issue new debt, it uses the newly issued coin to settle its bills.
According to Bloomberg's Josh Barro:
"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."Digital Journal analyst explains:
"The idea, putting it in clearer terms than Barro's, really amounts to a devil's advocate game of brinkmanship for the Obama administration in confrontation with its Republican opponents. Everyone with a basic knowledge of how economies work can understand that It really makes no sense to suggest that the Obama administration fund spending by minting a coin, but the proposal for an economic brinkmanship approach insists that it is even sillier to suggest the possibility of defaulting, so why not make a feint for the better of two foolish options and hope your opponents will come to their senses?
"The proposal is valid only as Bloomberg's Barro suggests: A strategy for arm twisting the Republican Congress. Barro's explanation that Obama 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 is too vague a statement of guarantee on which to run an economy that investors are loosing confidence in."The Huffington Post reports that meanwhile, Rep. Greg Walden (R-Ore.) is introducing a bill to stop Obama and the Treasury Department from minting the coin.
The 14th Amendment alternativeThe Huffington Post reports that the House Minority Leader Nancy Pelosi, has urged the Obama administration to use the 14th Amendment option to solve the debt-ceiling crisis. Krugman also recommends the platinum coin option if only the 14 Amendment solution to simply declare the debt-ceiling unconstitutional fails.
According to The Huffington Post, Pelosi, appearing on CBS "Face the Nation" on Sunday, endorsed the 14th Amendment option which holds that "Congress doesn't have the power to use the debt ceiling as a hostage-taking device because the validity of the debt 'shall not be questioned.'"
The Huffington Post:
Nancy Pelosi: Well, you ask the Republicans, because we always passed the debt ceiling. When President Bush was president, as he was incurring these massive debts, and the Republicans weren't saying 'boo' at the time. There should be, this is a conversation where there should be no doubt. In fact, if I were president, I'd use the 14th Amendment, which says that the debt of the United States will always be paid.
Bob Schieffer: You would just go ahead and do it, you wouldn't wait for the Congress?
Nancy Pelosi: I would just go do it. But the Congress has incurred much of this debt. And so what are you saying, we incurred it but we're not going to pay it? If you want to say, 'We are not going to do it so much in the future,' well that's another thing. But you can't say, 'I'm not paying my past debts.'
The 14th amendment option is gaining popularity. Senate Majority Leader Harry Reid (D-Nev.) has also urged the president to use the option to resolve the debt-crisis, The Huffington Post reports.
But so far, the White House has argued that the executive arm does not have the legal power to deploy the 14th Amendment option. According to White House Press Secretary Jay Carney: "This administration does not believe that the 14th Amendment gives the president the power to ignore the debt ceiling -- period."