Should Barack Obama try a little (legal) tender-ness?

Colby Cosh with advice on eluding the congressional debt ceiling

Just about my favourite thing in the world is when someone comes up with an idea for a policy move that (a) seems completely ludicrous but (b) is completely legal and (c) would probably work. With the U.S. headed for the so-called “fiscal cliff,” there is renewed discussion of a weird jiujitsu move that President Obama could conceivably use to elude the congressional debt ceiling.

The executive branch is, as a general rule, not allowed to incur debt in defiance of Congress, and the U.S. Mint’s printing of money is strongly circumscribed by statute. But last year a blogger named Carlos “Beowulf” Mucha noticed an oddity in the U.S. Code: the Treasury does have an explicit unrestricted right to order the mint to create collectible platinum coins of arbitrary face value. They can’t be gold or copper or aluminum; they have to be platinum. Under this theory, the President could tell the mint to strike a couple of platinum coins with denominations of $1 trillion each. He would then deposit them with the Federal Reserve, in what is actually the ordinary fashion, and the Fed would in turn issue the Treasury a credit of $2 trillion; since the physical specie is there at the bank, no “debt” is technically created at all.

This would be an executive branch intrusion on the Fed’s acknowledged privilege of controlling the money supply. It’s probably the kind of loophole Americans probably do not want to establish a precedent for exploiting. (Insert “Pretty soon you’re talking real money” joke here.) But amidst controversy over the Fed’s management of monetary aggregates, the platinum fantasy is finding enthusiasts in surprising places: not only in the left blogosphere where it originated, but amongst “market monetarist” critics of the Fed (who believe that the central bank should be targeting nominal GDP growth instead of inflation).

Among leading econopundits, Felix Salmon charged that magic platinum coins would represent “the utter failure of the U.S. political system and civil society.” Matt Yglesias questioned whether it was really possible but admitted that the idea “highlights a very accurate point”—that the U.S. controls the unit of account in which its debts are denominated, and so has (finite) room to manoeuvre in ways other countries don’t. Market monetarist Scott Sumner asked whether it was a “brilliant masterstroke” or a “loony idea” and decided “I can confidently answer ‘both’.” A man after my own heart.

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