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There are three classes of opponents of High Value Platinum Coin Seigniorage (HVPCS, $30 T and above). The first and largest group opposes all PCS of whatever type. The second, opposes HVPCS, but favors using the Trillion Dollar Coin (TDC) for the limited purpose of avoiding the debt ceiling. The third, opposes HVPCS, and doesn’t really favor using the TDC either, except, perhaps, as a last resort.
It favors an incremental approach to PCS beginning perhaps in the millions or billions in face value, and over a long period of time eventually building up to a TDC. The remaining posts in this series consider the many objections brought forward by people in one or more of these categories, and my replies to them. As you will see, the opponents of HVPCS have already thrown everything but the proverbial kitchen sink at it. In this post, I’ll consider some legal objections.
PCS violates the intent of the 1996 legislation, and is an unconstitutional exercise of executive authority, or is an unconstitutional delegation of legislative authority to the executive.
The Courts generally don’t try to interpret laws based on theories about Congressional intent, in the face of the plain language of a law. The language of section (k) of the 1996 legislation is particularly plain in providing for platinum coin seigniorage and leaving face values and other coin attributes up to the Secretary. It is not just that section (k) is plain its meaning; but also that other sections of the law constrain what the secretary can do in various ways. The plain implication of the section (k) textual context is that Congress intended to delegate broad powers of platinum coin seigniorage to the Secretary. There is no contrary evidence to the plain meaning of the text of section (k) in the law.
Some have contended that the purpose of the statute was to legislate about commemorative coins, rather than coins intended as a a source of revenue for the Treasury. Philip Diehl, Director of the US Mint at the time of the legislation drafted the language of the law. He flatly denies that the intent of the law was to authorize more commemorative coins, and says it was to provide new coins that would produce profits for the US Mint. Such coins are unambiguously legal tender. There’s no further evidence that Congress intended anything else in passing the law he drafted.
The Justices aren’t collective psychologists who are expert at divining the intent of the Congress. They are expert, however, at interpreting what the text of a law says, and so that is what they stick to almost all the time. A challenge to PCS based on intent isn’t something any Court is likely to take up, in the face of the language of the 1996 legislation, and Congress’s plain ability to repeal one or more of countless laws that allow unintended consequences.
What if a $60 trillion dollar coin is used to avoid the debt ceiling, and this saves the United States from defaulting on its debts, and the world financial system from collapsing? Is it then likely that the Supreme Court will entertain any challenges to the plain language of the law based on an interpretation of intent, unsupported in the text of the law, which would then place the Treasury in the position of having to return that trillion dollars in Fed credits, and again look default in the face? Can you see John Roberts ever voting for this?
John Carney, a CNBC blogger, has suggested that the 1996 legislation is unconstitutional because it specified an impermissible delegation of the Congressional authority to coin money to the Executive Branch. He argues that there’s no “intelligible principle” behind the language in section (k) limiting the Secretary’s powers.
However, Congress delegated to the Treasury the power to mint platinum bullion and proof coins having a variety of properties to be specified by the Secretary; but it did not delegate to the Secretary that power with respect to coins made out of other materials; or even with respect to platinum coins that are neither bullion or proof coins. So, Congress did limit the authority of the Treasury to mint platinum coins according to intelligible principles. Just not the intelligible principle that the coins involved had to be limited to a specific face value. Or, to put it another way, in the area of platinum coins what Congress has done is to delegate its authority according to “the intelligible principle” that the Secretary is to mint such coins with face values he/she deems necessary and proper.
PCS really doesn’t avoid breaching the debt ceiling
It’s also been suggested that PCS doesn’t solve the debt ceiling problem, because in substance, if not in form, using the platinum coin is just a way of Treasury getting a loan from the Fed until the debt ceiling can be raised and it can go back to issuing debt. This argument assumes, however, that Treasury would have an obligation, at some point, to redeem the coin from the Fed with revenue raised from taxes or debt issuance. However, none of the proponents of using PCS, until very recently, when this idea crept into the writing of Paul Krugman, ever proposed restoring the status quo by buying the coin back from the Fed.
Instead, our main idea has always been that any platinum coins deposited at the Fed would remain in its vault as a Fed asset in perpetuity, and that the Fed would credit the US Mint’s account with the face values of the coins. In our view the Fed would have the legal duty to provide such credits in response to a deposit of a platinum coin or coins because the coins are legal tender, and the NY Fed, as the fiduciary banking agent of the Treasury Department, cannot refuse to accept and credit a legal tender coin. The Treasury would incur no obligation to the Fed in using PCS, any more than any one of us would incur any obligation to our bank in giving them a coin with $100 in total face value, and expecting the bank to credit our account with that $100.
The Fed can’t be forced by Treasury to accept and credit an HVPC it mints
Oh, yes it can. Treasury may choose not to force the Fed to do this, as it just did, but one of the powers vested in the Secretary of the Treasury before creation of the Federal Reserve system was certainly to spend its legal tender into the economy. To do that under an arrangement where the Fed is its fiduciary bank/agent, requires that the Fed deposit and credit its legal tender into its spending account, the TGA. So, I think it follows that under 12 USC 246, the Secretary has the authority to order the Federal Reserve to credit that coin so Federal spending can proceed. If the Fed Chair still refuses, then the President can remove the Fed Chair for cause (12 USC 242). See this more detailed argument for further development. In Part Three, I’ll consider political objections to using HVPCS.
(Author’s Note: h/t to Jack Foster for proposing a framing document for HVPCS. This is it; but divided into 6 parts for blogging convenience. The rest of the series will continue with objections made to HVPCS and my answers to them.)
(Cross-posted from New Economic Perspectives.)
11 Comments
Thanks and rec’d. Now, by way of supporting and bolstering the points you’ve correctly made, here are some additional points.
Article 1 Section 8 gives Congress three ways to raise money to defray government expenses: taxation etc. [Clause 1], borrowing money [Clause 2], and last but not least “coining money,” which the government has been doing for the past 220 years. The percentage of government expenses defrayed by the coining of money was about $10 billion in 2011, i.e., about 1% of the tax deficit. My point is that covering a portion of the tax deficit with freshly coined money has been going on for more than two centuries. It isn’t something “new,” “wierd,” “silly,” “hilarious,” “irresponsible,” or “underhanded.” Yes, the bankers don’t like it, because they don’t get fees and interest on this money. But, too bad, so sad. And, please note that all U.S. dollars except coins are created by banks and bring them interest revenue.
Secondly, let’s look at the exact text of 31USC5112(k), the 1996 law that enables jumbo coins:
The only thing different here from all previous enabling legislation for the minting of coins is that it leaves to “the Secretary’s discretion” the denomination of the coins involved. There was no previous limit on the quantity of coins the Mint could coin, but in previous legislation, the denominations were specified. Permission to mint an unlimited amount of money had always been present, but this legislation removed any logistic impediments. If this is unconstitutional so have been all coinage bills passed in the preceding two centuries.
Thanks for the amplification. it’s great; and a great point!
I know. The people who are claiming it’s unconstitutional are stretching mightily to defend the financial status quo. This isn’t about the constitutionality of the coin; it’s about the power shift.
Thanks again, LGID! THE POWER SHIFT. Those are the key words. Their arguments against this solution will not stand. I’m going to print out these posts for future ref. when nothing gets done and we fall in the “abyss”. Please, you and wigwam be careful, you may be upsetting the wrong people. Even Krugman’s lost? It may be hopeless, but I will not give up. One other key phrase, “no fees or interest to be made”. That will certainly get their dander up. Again, be careful. PEACE
continuing …
Congress doesn’t directly handle the nation’s money. Rather, it has delegated its money-handling powers, with various limitations, to the Treasury and the Federal Reserve. As I pointed out in #2 above there is no limit to the quantity of most coins (and hence quantity of money) the Secretary can mint that has ever been specified.
I’ve noted elsewhere that Congress has granted the Federal Reserve similar power to issue an unlimited number of dollars, for example, per rt.com:
And, the Fed has had this unlimited power to issue dollars for the 100 years since its founding in 1913.
Perhaps, John Carney is just now waking up to the fact that Congress has for centuries delegated the power to generate and unlimited amount of money to the Treasury and the Federal Reserve. But, that power is well established and has a very long precedent.
The only thing that is signifcant about 31USC5112(k) is that it removed the logistical impediments to coining say $100T.
… continuing.
So commenters have insisted that 31USC5112(k) violates Congress’s “power of the purse,” which is enshrined in Article 1 Section 9 Clause 7
But that so-called “power of the purse” is the power to dictate how much money gets withdrawn from the Treasury (purse), when, and for what. Congressional appropriations do no put money into the purse, taxing, borrowing, and minting sufficient money to cover those appropriations is the duty of the Treasury.
Careful? Me?
The other thing that’s significant about it is that gives Treasury the capability to send an instruction (say in the form of a $60 T coin accompanied by the equivalent of a deposit slip) to the Fed to credit its account with a specific quantity of reserves (e.g. $60 T).
Digressing a bit. Tax deficits are covered by a mixture of money that has been borrowed under Article 1 Section 8 Clause 2 and money that has been coined under Article 1 Section 8 Clause 5. The distinction is that coined money is issued by the Treasury and can immediately be deposited into the Treasury’s general account at the Fed and used to defray appropriated expenses. By contrast, most borrowed money originated as bank credit, either directly (when a bank purchases a T-bond) or indirectly (when someone takes out a loan at a bank).
Currently, the only coined money in the U.S. consists of coins. But, prior to the establishment of the Federal Reserve exactly one century ago (1913), the U.S. government “coined” all kinds of paper money including greenbacks and $100,000 bills.
That, of course, brings up the question of how one can coin something other than a coin. The fact of the matter is that “coin” as a verb does not mean “to mint.” Rather, it means to “fabricate” or “invent” as in “coining a phrase.”
In a fact, in the U.S. for the past century, coins and Treasury-issued (i.e., Treasury-coined) money have been one and the same, but that hasn’t always been so and need not remain so.
This is an excellent comment and with a few more paragraphs would make a very worthwhile post.