Coin Seigniorage, the Debt Limit, and the President's Duty
I've written a lot about jumbo coin seigniorage as a way of getting around the debt ceiling problem over the past 7 months, and others here, here, here, here, here, and here, apart from beowulf and I have been joining the fight. Lately, the situation has crystallized much more sharply for me as the day of reckoning for default on the Government's obligations approaches; and so, I wanted to present my thinking as briefly as possible in the form of a series of points.
-- Congress has appropriated Federal spending for FY 2011 which the Executive is mandated to spend.
-- These appropriations exceed the tax revenue the Government is collecting. This was expected at the time the appropriations were passed. So Congress appropriated deficit spending.
-- Congress has mandated that whenever the Government plans to deficit spend, it must first issue and sell debt instruments in an amount a least equal to the planned deficit spending. In this connection, the Treasury is prohibited from having an overdraft in its Treasury General Account (TGA) at the Federal Reserve Bank.
-- Congress has mandated a debt limit such that the Administration must stop issuing debt when that limit is reached. (The limit was reached in early May). Given the Congressional requirement that deficit spending must be accompanied by debt issuance, the debt limit, in the absence of other countervailing factors puts a stop to deficit spending, until the limit is increased. There is a very important countervailing factor. But it is not recognized or used. So, for the moment, at least, the debt limit has stopped any further deficit spending
-- The 14th Amendment, section 4, requires that the validity of the “debts” (broadly construed) of the United States never be questioned, and since the President has sworn an oath to uphold the Constitution, he is obligated to do all he can to see to it that these “debts” are paid.
-- Congress has provided the authority, in legislation passed during the 1990s, for the US Mint to create platinum proof coins with arbitrary fiat face value having no relationship to the value of the platinum used in these coins. The US code also provides for the Treasury periodically sweeping the Mint's account at the Federal Reserve Bank for profits earned from coin seigniorage generally. These profits are then booked as miscellaneous receipts (revenue) to the Treasury and go into the TGA, closing the revenue gap between spending and tax revenues. Platinum coins with huge face values e.g. $2 Trillion, would close the revenue gap entirely, and technically end deficit spending, while still retaining the gap between tax revenues and spending. If used routinely to close the revenue gap, such jumbo coin seigniorage would reduce the national debt to zero, and remove it as an issue in US politics. In addition, the existence of jumbo coin seigniorage as an option, removes the tension between the mandated debt ceiling and the 14th Amendment. It is the countervailing factor I mentioned earlier, because it provides a way to spend Congressional appropriations without issuing further debt.
-- The President has sworn to uphold both the Constitution, which prohibits a default, and also the laws of the United States including the mandates just mentioned.
-- These mandates, along with the platinum coin seigniorage authority, make using seigniorage the one viable option to: continue spending appropriations without violating the debt limit; fulfill all the other mandates, both legal and constitutional; and still be able to spend the money Congress has appropriated.
-- So, if no action by Congress raising the debt limit is forthcoming, it will be the President's solemn DUTY AND OBLIGATION to use platinum coin seigniorage to make the money necessary to avoid default, since his failure to use the only way of continuing to spend appropriations, which he is mandated to do would be a violation of his oath of office.