The United States is looking down the barrel of yet another possible self-imposed debt default. House Republicans, now effectively led by the most deranged members of the Freedom Caucus, are openly promising to take America’s full faith and credit hostage to extract massive concessions from President Joe Biden and his fellow Democrats.
The dire consequences of a default are well documented. U.S. debt is practically the foundation of the global financial system. If the rest of the world comes to doubt its reliability, a major recession is likely, if not a shattering financial crisis.
Without the coin, the president would violate the law one way or another.
Yet there is one aspect of the debt limit issue that has gotten little coverage: It would be just as illegal to obey the limit as it would be to ignore it. If Republicans refuse to raise the debt ceiling, they will put the president in a bind: requiring him to spend, but forbidding him from borrowing the necessary money. Biden would have no way out — unless he opts for the platinum coin loophole. Without the coin, the president would violate the law one way or another. It’s hard to see why he would choose the option that causes an economic crisis.
Let's review the situation. Treasury Secretary Janet Yellen said that on Thursday the department will begin on various accounting shuffles to stave off actually breaching the debt ceiling, but the tricks are estimated to run out as soon as June. Republicans have not agreed on a set of demands for ransoming the world economy, but some hard-liners have mentioned one dollar of spending cuts for each new dollar of debt, cutting spending back to 2022 fiscal year levels, repeal of new funding for the IRS, and rollbacks of abortion rights. In the meantime, the House GOP is reportedly working up a payment prioritization plan that would defund everything except interest payments on the national debt, Social Security, Medicare, veterans’ benefits and the military.
Basically, they want Democrats to repeal all their hard-won legislation from last year, or to shut off something like a quarter of the government — including “Medicaid, food safety inspections, border control and air traffic control,” per The Washington Post —indefinitely. But any such measures would have to be passed by both Senate Democrats and Biden, both of whom have dismissed any concessions out of hand. Moreover, experts agree that prioritizing payments would be logistically impossible, given the huge volume of payments the government makes every day.
On the other side, during the lame-duck session Congress passed a $1.7 trillion spending bill that keeps the government funded through September, which Biden signed into law on Dec. 29. That’s the legal bind: Congress instructed the executive branch to operate the government at specific spending levels through the end of the fiscal year, but now is refusing to grant it the borrowing authority necessary to carry out its own instructions.
If the debt ceiling is hit, and the coin is ruled out, then Biden must pick which legal violation he will commit.
All this is why the famous platinum coin is Biden’s most legally defensible option, despite how silly it sounds. A 1997 law clearly grants the treasury secretary the ability to mint platinum coins of any denomination, in part with the intended purpose of making profit for the government through seignorage. If Congress says that the president must spend, cannot borrow, but can mint, then the way is clear for a legal stickler. Mint a trillion or two in platinum coins, deposit them at the Federal Reserve, and hey, presto, problem solved. Economically, it would be virtually identical to borrowing the money, and presumably at some point the ceiling could be raised and the coin spending replaced with normal debt.
Yet administration lawyers apparently disagree. Yellen has further said the coin is a “gimmick” that “compromises the independence of the Fed, conflating monetary and fiscal policy.” This is a weak argument in context — it’s hard to see why a gimmick that allegedly erodes the (highly overrated) independence of the Fed would be worse than financial Armageddon.
But at any rate, it is profoundly odd that both the administration and nearly all mainstream media coverage treat the debt limit as an ironclad legal obstacle — but do not grant the same treatment to the spending law. “Once the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt,” Alan Rappeport wrote at The New York Times, as if it’s an actual physical mechanism that would forcibly prevent new borrowing. Nowhere does he mention that Biden would also be violating the law if he fails to spend as ordered.
If the debt ceiling is hit, and the coin is ruled out, then Biden must pick which legal violation he will commit. Surely any sane person would choose the option that doesn’t cause drastic and utterly pointless harm to the global economy. That choice becomes even clearer when one considers that the debt ceiling itself is arguably unconstitutional under the 14th Amendment, which states, “The validity of the public debt of the United States, authorized by law … shall not be questioned.” As President Abraham Lincoln argued when Chief Justice Roger B. Taney tried to stop him from locking up a man accused of treason during the Civil War, “Are all the laws but one to go unexecuted, and the Government itself go to pieces lest that one be violated?”
House Republicans, most of whom voted to overturn the 2020 election, are utterly in thrall to QAnon lunatics. They are ignorant and unhinged enough to blow up the world economy either so they can blame it on Biden or simply revel in the resulting chaos and destruction. The idea that it could be a bipartisan vote, as Senate Majority Leader Chuck Schumer, D-N.Y., has advocated, is wishful thinking. Something like the platinum coin will very likely be necessary to stave off disaster. Biden must steel himself to break the debt ceiling forever using his own power.