Tuesday, July 19, 2011
Can the President really coin us out of this mess?
So what began as a reductio ad absurdum on my part is now a still-a-joke-but-not-nearly-as-much option that Jack Balkin is exploring. The argument (better elaborated by commentator Brad than myself) is that 31 USC 5112(k) seems to authorize the Treasury to coin money in unlimited amounts and in any denomination. So the Treasury can just mint some $1 billion coins to plug the deficit. From a purely legal perspective, this really does seem the most feasible option come debt limit time, in as far as coining new money to cover appropriated spending violates no constitutional or statutory provision I am aware of. Given how fast these things move, I can easily imagine this becoming the new "constitutional option" in the next week.
From an economic perspective, however, this could very well be worse than just defaulting outright. The problem is not so much the immediate increase in money supply causing inflation -- given the existing money supply, adding a few billion is unlikely to cause too much inflation. The bigger problem is that printing money to plug your deficit is probably the most glaring sign of a political system that is broken beyond repair. If the financial markets go berserk after August 2, it won't be because bondholders are upset at getting a coupon payment late (first, the coupon payments won't be late given incoming tax revenues; second, even if they are late, the missed payments by themselves are not the issue), but because they conclude that Congress is crazy.
Posted by Tun-Jen Chiang on July 19, 2011 at 01:00 PM | Permalink
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I can think of plenty more "glaring sign[s] of a political system that is broken beyond repair": the military arresting the president, the government voiding all existing currency and starting again, Congress deciding to cancel an entire election cycle, a major political party being declared illegal; inability to obtain a quorum in one house of Congress for several months . . .
Posted by: James Grimmelmann | Jul 19, 2011 1:45:31 PM
James, you are both right that my language was a bit hyperbolic, and largely wrong in your specific examples. The military staging a coup, etc., show that the political system is broken from a democracy perspective, but not to financial markets. Dictatorships can make for great debtors. And as for government voiding all existing currency, that is usually preceded by printing money to cover the deficit.
Posted by: TJ | Jul 19, 2011 2:14:25 PM
Balkin's post is clearly offered in jest (and is pretty amusing) but at the risk of taking a joke too seriously, I don't think the coinage argument works as a matter of statutory interpretation. Section 5112(a) states that the Secretary of the Treasury "may mint and issue only the following coins," and then lists denominations ranging from one cent up to fifty dollars. Assuming "only" in this provision truly means "only," the argument that the Secretary may simply start minting trillion dollar platinum coins seems dubious.
The platinum coin argument depends on Section 5112(k), which provides that "[t]he Secretary may mint and issue platinum bullion coins 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." Notably, 5112(e), which authorizes the minting of certain silver coins, is prefaced by a statement declaring that the Secretary has authority to issue the coins described in that section "[n]otwithstanding any other provision of law" and Section 5112(i), which authorizes the issuance of certain specified gold coins, specifically exempts such coins from the denomination provisions of Section 5112(a). Section 5112(k) lacks any similar prefatory language and the natural inference is thus that the Secretary's discretion with respect to the "denomination" of the platinum coins referred to in that provision is limited to minting coins that correspond to one of the denominations permitted by 5112(a) (i.e., up to a maximum of $50).
Thus, even apart from the dangers of sofa cushions and vending machines, the trillion dollar coin option does not seem viable.
Posted by: Anon | Jul 22, 2011 5:06:10 PM
anon, I can see your argument, but I don't think it is right. Section 5112(a) prescribes the material for the $50 coins (99% fine gold) as well as their denomination ($50). I find it hard to argue that 5112(k) overrides the material requirement, despite the "only" bit in 5112(a), but not the denomination requirement, when 5112(k) has both in the same breath.
In any case, 5112(a) and (b) allows the secretary to mint $1 coins with any metal. So we can get to the same place by minting a few trillion $1 coins. The legal argument for unlimited coining is pretty solid. The problem is that it is a terrible, horrible, no good, very bad idea.
Posted by: TJ | Jul 22, 2011 5:30:07 PM
Clearly the denominations are not limited by (a), since they already have $100 platinum coins
[TJC edit: just to clarify, this commentator is not Jack Balkin.]
Posted by: JB | Jul 28, 2011 3:28:02 PM