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Peterson/CBO Beat for Austerity Goes On!

6:53 pm in Uncategorized by letsgetitdone

Recently, I’ve been writing about oligarchs advocating for entitlement cuts and austerity. I’ve discussed attacks on entitlement benefits for the elderly from Abby Huntsman (of MSNBC’s The Cycle) and Catherine Rampell (a Washington Post columnist), both the children of well-off individuals. These posts have come in the context of the English language release of Thomas Piketty’s Capital in the Twenty-First Century, and the more recent pre-publication release of a study by Martin Gilens and Benjamin I. Page using quantitative methods and empirical data to explore the question of whether the US is an oligarchy or a majoritarian democracy. They conclude:

”What do our findings say about democracy in America? They certainly constitute troubling news for advocates of “populistic” democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens. In the United States, our findings indicate, the majority does not rule — at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.”

With this as a backdrop, today I want to de-construct a recent statement by Michael A. Peterson, President and COO, of one of the centers of American oligarchy, the Peter G. Peterson Foundation (PGPF), and the son of the multi-billionaire Peter G. Peterson, commenting on the CBO’s Report earlier this month, on its updated budget projections for 2014 – 2024. Read the rest of this entry →

An Open Letter to Don Beyer, VA – 8th Candidate for Congress

8:08 am in Uncategorized by letsgetitdone

(Author’s note: My apologies: this one’s about 6 times longer than the ideal 1000 word post. I just didn’t feel right about breaking it up into parts, however, because that lose the continuity. So, please bear with it. I think a lot of candiates for Congress need to get these questions from angry constituents.)

My Congressman, Jim Moran, is retiring this year and his seat is up for grabs in the VA – 8th Congressional District. This is a solidly blue district made even more solid by the Republican gerrymander following their win in the disastrous elections (for poor people, for women, for the middle class, and for minorities) of 2010 in Virginia. So, the question is, which of the eleven candidates who are running in the primary will win it, and become the heavy favorite to win the Congressional election in November.

The heavy primary favorite is Don Beyer, a noted auto dealer in Northern Virginia, who has served as Lieutenant Governor twice, and also as Ambassador to Switzerland. My impression of Ambassador Beyer has been favorable. I have a friend who bought cars from him over many years and who had his Volvos serviced at his dealership all the while, and he had nothing but good things to say about the integrity of the service he received.

That said, however, and personal characteristics aside, I’d like Beyer to clarify his positions on the issues. So, I’m addressing this open letter to him. Read the rest of this entry →

Still Not Over: CPC Update

8:11 am in Uncategorized by letsgetitdone

The Congressional Progressive Caucus (CPC) recently issued its “Better Off Budget” document as an alternative to the White House/OMB document, and the coming House budget document, a Republican/conservative alternative. The “Better Off Budget” has received enthusiastic evaluations from writers affiliated with the DC progressive community. Richard Eskow’s recent treatment is typical and provides other reviews that are laudatory. These “progressives” clearly see the CPC budget as anything but an austerity budget. But is it, or is it not? Read the rest of this entry →

Bernie Sanders: Self-shackled Champion of the People

1:48 pm in Uncategorized by letsgetitdone

I gotta love Bernie Sanders, because he seems so much like people I grew up with and like myself too, and he also seems to have that passion for equality and democracy that is so important for the future of America. Sometimes I think Bernie is one of the few champions of the people left in Congress. But I also think that along with other progressives he has constructed chains for himself that prevent him from being as effective a champion of the people as he otherwise might be.

His chains are the chains of either false beliefs or a decision not to speak the truth about fiscal matters for fear that the “very serious people” in the Washington village will marginalize him even more than they do right now. I can’t say which of these is true, but I think whichever reason is operative, his self-shackling hurts his effectiveness.
Read the rest of this entry →

Dick Durbin Insults Everyone Else’s Intelligence About Social Security

3:33 pm in Uncategorized by letsgetitdone

Yesterday on Fox, Senator Dick Durbin said:

WALLACE: I’m going to talk about ObamaCare on a second, but you’re not answering my question. Why does taxes — why do taxes have to be on the table? Why can’t you just make a deal, short-term spending for long-term entitlement reform — which, Senator, you support and President Obama support. You have supported the idea of some entitlement reform.

DURBIN: That’s right. I do, and I’ll tell you why — because Social Security is going to run out of money in 20 years. I want to fix it now, before we reach that cliff.

Medicare may run out of money in 10 years, let’s fix it now. And that means addressing the skyrocketing cost of health care. That’s what ObamaCare is focused on, and yet, the Republicans want nothing to do with it.

If we don’t focus on the health care and dealing with the entitlements, the baby boom generation is going to blow away our future. We don’t want to see that happen. We want to make sure that Social Security and Medicare are solid.

The “. . . may run out of money. . . . ” and “. . . dealing with entitlements. . . “ memes, in reply to Chris Wallace’s question suggests that a deal trading increased revenues for Social Security and other entitlement cuts is acceptable to him. So, Durbin’s argument is that because Social Security Trustee and CBO projections, based on very pessimistic economic growth projections for the whole period, show a shortfall in the Social Security “Trust Fund” in 20 years, it is acceptable to make entitlement cuts now if the Democrats can get increased revenue from higher taxes, as if entitlement “reform” were the only way to meet the perceived Social Security solvency problem. But who would it be acceptable to? Read the rest of this entry →

What Happens Now?

7:12 pm in Uncategorized by letsgetitdone

In the aftermath of the great 2013 government shutdown/debt ceiling crisis, and the kicking of the can down the road while maintaining austerity once more, the subject on many minds is where do negotiations over fiscal policy go from here? Will the new “budget committee” produce more austerity and do a grand bargain including the “chained CPI”? Will Congress finally turn towards economic growth and job creation, or will we continue to have more shutdowns and debt ceiling crises in 2014?

Chained CPI and the “Grand Bargain”

Let’s begin with “chained CPI” and possible “Grand Bargains.” The President seems to still want one, but the question is, does anyone else? And, if they don’t, can he still get it through?

It’s dangerous for anyone running in 2014 to vote for chained CPI. Surveys show that overwhelming majorities of all Americans want no cuts to Social Security and Medicare, and also that 40% of tea party respondents are 55 or over, and are not likely to support such cuts, either. Nor do they appear to be anti- “their” Medicare. It’s the corporate Republicans who oppose these things. So, I don’t think the corporate Republicans would get much love from the tea baggers for supporting entitlement cuts, apart from Medicaid, which I think the tea party views as welfare. Certainly any credit the Congressional Republicans would get from their tea party base for voting for “chained CPI” would not outweigh their having given in on the CR and the rise in the debt ceiling just passed.

So what can the corporate Republicans in Congress gain from voting for chained CPI? Very little, I think, unless the Democrats get behind it, and then they can run against the Democrats as having sold out Social Security, as long as not many Republicans vote for it. In that case, however, the Democrats won’t have enough cover to vote for it, so they are unlikely to do so.

So, then we have to ask, what can induce the Democrats to vote for entitlement cuts knowing it will hurt them in the elections? Will the President be a big factor in the Congressional elections? He wasn’t in the elections of 2012, and, he was a negative in the 2010 wave election. Can he deliver votes by campaigning for other Democrats? Does he even want to? Does it matter to Congressional Democrats if he gets annoyed at most of them? I doubt all of these things.

Why will Patty Murray and Harry Reid (both of whom may want to run again in 2016) vote for chained CPI? To end the sequester? As Joan McCarter says, the coming second round of the sequester hurts the Republicans more than the Democrats. So, where’s the incentive for Democrats to go along with the President on chained CPI? I don’t think there is any.

If the President wants chained CPI this Spring, then he needs to assemble a corporate, Wall Street-supporting coalition from both parties, and that has to be large enough for a majority in the House. Since many Republicans would see passing the chained CPI as a victory for the President if he continues to support it, and the Democrats in Congress don’t, then we’re talking about a situation where the Tea Partiers and their allies would be called upon to pull the President’s chestnut out of the fire. How many votes do you suppose he’d get from the Tea Partiers and other Republicans for this? Keeping in mind that they just got 144 votes in the House to continue the ruinous shutdown/debt ceiling crisis, maybe 40, or 50? Or even that many, given that they’ll want to run against the Democrats on Social Security in 2014, if possible, and won’t see any political gain in holding hands with him as everyone jumps off the “I voted against SS” cliff?

And how many House Democrats would he get to play along? 150? 100? More? I think if he can’t get 200, an almost impossible outcome with at least 90 “progressives” very uncomfortable with the proposal, then this dog won’t hunt. The more he’s likely to fall short, the more likely it is that Democrats will see themselves as walking the plank for nothing, and will just run away from the proposal, and vote against it if need be.

Now you may see this scenario as far-fetched, because you may be thinking there would be some big omnibus deal with the Republicans that chained CPI would just get tucked into, and that would be irresistible for “progressive” Democrats. But what do the Republicans have to give? They certainly won’t offer any additional taxes on the wealthy. That’s poison to them. And they certainly won’t offer any increased deficit spending, say on infrastructure, because that would weaken the deficit/debt play they plan to run for all they’re worth in the election, and also because they know that infrastructure spending will reduce unemployment, and perhaps improve prospects for Congressional Democrats in the elections.

So what can they offer? Only concessions on the sequester. But here, if Pelosi, Murray and Reid play tough, as they certainly ought to do, then as Joan McCarter explains, the Republicans either have to shoot themselves in the foot again by keeping in place the sequester, or they would have to come to agreement. Then, if the Democrats know what’s good for them in 2014 (not a sure thing by any means, but still likely, in light of how well refusal to budge has served them over the past two weeks), then they won’t accept anything less than full lifting of the sequester. It’s harmed the economy for long enough, we need them to get rid of it, and they need that too.

The Republicans will then play games proposing lifting the parts of the sequester they don’t like, while giving the Dems nothing or only very little. At this point the Democrats need to take an all or nothing position on the sequester, rejecting the Republican’s salami tactics, and calling on the public for an end to the sequester nonsense, which has hurt the economy so grievously already.

The Rs will respond either by agreeing to lift it, or they will refuse. If they refuse, then the Democrats get to blame them for the down economy, we will surely see in the run up to the election, and the Democrats can run against that down economy which they would then claim was caused by the Republican shutdown, multiple debt ceiling crises, sequester, and blocking of any efforts to lower unemployment with jobs programs. (“They promised us “jobs,” “jobs,” “jobs,” and what did we get? Debt ceiling crises, sequesters, a government shutdown, more unemployment, and an economy in the ditch.)

Given that CBO projections will probably show the deficit going down to $400 Billion or less in FY 2014, which is about 2.5% of GDP, the Republican emphasis on “teh debt” and the deficit will not trump a Democratic campaign blaming Republicans for the lack of recovery and calling for jobs programs. Add to the above themes the Republican War on women, and suppression of voting rights of seniors, blacks, hispanics, and urbanites, and we have a Democratic victory in 2014 large enough to get back the House and keep the Senate.

Given all this, I don’t think there will be any Grand Bargain or chained CPI “compromise” in the near future and in the run-up to the election. It just makes no political sense for most Democrats and many Republicans. It may come up again in the lame duck and possibly in the next Congress, Republican or Democrat, if the President continues to push it. But I don’t think we’ll see it again this fiscal year.

Continued Austerity?

What we will see however, is continuing austerity from CRs or budget agreements, whether or not the sequester is lifted. Where a trade deficit exists, Government austerity is either running a surplus, or a deficit so low that it doesn’t make up for the leakage in demand due to the trade deficit. Let’s say one’s trade deficit is 3.5% of GDP, then the Sectoral Financial Balances (SFB) Model (whose terms refer to flows of financial assets among the three sectors of the economy in any defined period of time):

Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0

tells us that the domestic private sector, taken as a whole, can’t increase its net financial assets, unless the Government has a deficit greater than 3.5%. And, if we wanted to provide for the domestic private sector to save 6% while it was running that 3.5% trade deficit, anything less than a Government deficit of 9.5% of GDP would not meet that objective.

Of course, no budget proposed by anyone in Congress or the White House envisions a deficit this large. Patty Murray’s Senate Budget proposed in the Spring of 2013 envisioned a 4.2% of GDP deficit for FY 2014, just a bit more than the austerity boundary of 3.5%. Paul Ryan’s House Budget proposed a 3.2% deficit, which is an austerity budget, in the precise sense that given a 3.5% trade deficit, it would entail the private sector running a deficit and losing 0.3% in net financial assets.

Will either a compromise bill coming out of the budget committee, or a CR, after a failure to agree on a budget, be closer to Ryan’s or Murray’s deficit figure? I think it will be closer to Ryan’s; partly because the Congress just passed a CR for the first approximately three months of the fiscal year that is closer to Ryan’s view than to Murray’s and which maintains the sequester, and partly because I doubt that the Democrats will even propose a more expansive budget involving a deficit, but will just focus on getting the sequester removed in early 2014, and will then turn to other problems and to positioning themselves for the fall elections.

Growth and Jobs or Shutdowns and Debt Ceiling Crises?

I think the answer is neither. We may have shutdown and debt ceiling threats before the 2014 elections; but we will not have either of these types of crises, because the cost in public opinion, if it keeps trending the way it has been, will be too heavy for many Republican candidates, except for those in the reddest gerrymandered districts, to bear in 2014. I believe they know this, and that many of them are increasingly willing to chance getting primaried by tea party candidates in order to avoid probable defeat from Democrats, if they toe the tea party line and then try to run.

So, I think the shutdowns and debt ceiling scares are over until after the elections. That means there will have to be an agreement on a CR for the first part of FY 2015 by next October 1. That will happen because there’s no way the Republicans will chance another hostage-taking taking a month before the next elections.

That’s the good news. The bad news is that there will be very little growth and very few new jobs. If the sequester remains in place for the rest of FY 2014, unemployment is likely to increase, not decrease, because Government will continue to be a fiscal drag on the economy, and the private sector is likely to avoid expansion without increased demand. That demand could be manufactured by a credit bubble; but it doesn’t look like that is in the offing for 2014. So, the shortfall in demand produced by the Government will not be made up from private sector spending.

On the other hand, if the sequester is lifted, then this will make some difference. We will probably see declining unemployment if that happens, but since the deficit was much too small to sustain a vigorous expansion, even before the sequester, the decline in unemployment, increased job creation, and economic growth, will all happen only slowly, and by election time we will still see an unhappy public, but maybe one that is a little more hopeful about the future than we are now seeing.

I don’t know yet whether the falloff in economic activity due to Government austerity or near austerity, will be enough to produce another recession in the middle of this long stagnation period, Richard Eskow has aptly named “the long depression.” But there is some chance that this will happen before the fall elections. If it does, then we will see a messaging war on who bears the blame for the downturn, and the outcome of the elections will hang on the outcome of that war.

(Cross-posted from New Economic Perspectives.)

Off the Debt Limit Hook for at Least the Next Four Months

10:21 am in Uncategorized by letsgetitdone

(photo: L. Marie)

Provided that the Senate and House follow through on the scenario now on the table, it looks like the game of chicken worked for the Democrats this time. We’re off the hook on default and Government shutdown for now, and Washington village pundits are in full-throated cries of celebration.

Congress is off the hook too. They don’t have to offer any solutions to real, rather than manufactured, problems.

The President is also off the hook, he won’t, for now, need to exercise any of the options, like minting the coin, using consols, or premium bonds, or asset sales to the Fed, or others available to him to render the debt limit legislation impotent. So, he gets to preserve debt limit threats from the Republicans as a negotiating tool they can use to “force” him into entitlements cuts later on.

In fact, as I write Jay Carney is already talking about the President taking “a balanced approach” to future negotiations of fiscal policy so that the burdens of sacrifice will fall on everybody fairly. And, a bit later, there’s Nancy Pelosi echoing the Administration line on future negotiations. That, of course is also the Pete Peterson, Bowles-Simpson, catfood line for justifying further victimization of food stamp recipients, seniors, children, and the people who have paid the price for the Crash of 2008 and the neoliberal period in American fiscal policy beginning in 1977.

However, the deal that looks like it will happen isn’t a solution, but just kicking the can down the road including built-in pretty good possibilities for future Government shutdown and debt ceiling crises in just three – four months, if Congresspeople have the guts to subject the American people to this nonsense again in an election year.

Here’s Annie Rose-Strasser’s outline and analysis of the deal at Think Progress:

– Government funded through January 15 at sequestration levels

– Debt limit extended until February 7, subject to vote of Congressional disapproval, which Obama can veto

– A budget conference established to come up with long-term spending plans by December 13

– Income verification for recipients of subsidies under Obamacare’s newly-established exchanges

– Backpay for furloughed workers

Also, notably, here are some of the demands that Republicans have made in the last few days, but that are NOT in the bill:

No repeal of the “extraordinary measures” provision that allows the Treasury to do accounting tricks to avoid default

No ‘Vitter Amendment‘ that would have taken away employer contributions from the health plans of Congressional staff

No provisions related to birth control access

No flexibility in how government agencies make budget cuts to their programs, as they are required to under sequestration

No repeal or delay of the medical device tax

No repeal or delay of the reinsurance tax

No repeal, replacement, or delay of any aspects of Obamacare’s exchanges or individual mandate

It might look like this is overall a good deal for Democrats given the number of things that Republicans aren’t getting. It is good: It reopens the government and lifts the debt ceiling without doing any major additional damage to existing programs.

The word “additional” is the key here, since enormous damage has already been done to people and programs due to the various compromises made to avoid shutdown and debt ceiling threats since August 2011. These deals have placed increasing fiscal drags on the American economy and, increasing Government austerity that is preventing full recovery from the Great Recession. The current “deal” already involved a pre-surrender by Democrats to Republican proposed CR spending levels. Annie Rose – Strasser recognizes this.

But it’s important to remember that the baseline for negotiations wasn’t exactly even: Democrats accepted the major budget cuts of sequestration (slated only to get worse on January 15, the same day their budget deal expires), and their only demand was actually the status quo: Keeping the government running and having the country fulfill its financial obligations. They didn’t request to restore the funding sequestration took away, they didn’t demand any new programs or initiatives that Democrats support. And if the previous budget conference is any indication, the one established under this deal has the potential to blow up in Democrats’ faces, leading to more cuts instead of an actual, long-term budget. In that sense, while it is the best, cleanest deal we can get, the Democratic party has been pulled slightly from center to right, not from left to center.

Meanwhile, Republicans threw everything but the kitchen sink into their negotiations. It’s no surprise they’re taking a lot of losses.

Yes, we will have the Government open and the debt ceiling temporarily raised to get us through a few months, and the President is saved from going outside his comfort zone and giving the teahadists an excuse to try to impeach him, but the fundamental problem of the gradual imposition of increasing levels of government austerity creating economic stagnation is not being addressed, and, in addition, the even more serious problem of having laws in place that give a small minority in Congress the possibility of holding both the US and world economies hostage to their ideology is also neither being addressed nor solved.

So this is no victory, and no cause for celebration. The conditions are still there supporting a Great Betrayal, and another slide into recession, along with the possibility of another Global Crash due to financial manipulations in the mortgage international derivative markets.

Meanwhile, what can we look forward to? A brief respite from budget battles and then a rush through a manipulated membership budget conference designed to produce a Bowles-Simpson austerity “solution” to be completed by December 13, to be voted up or down, and with a good likelihood that this Conference will either fail to come up with a result, or that its results will be rejected by teahadists or fellow travellers who will never accept tax increases, and by progressives who will be unwilling to vote for entitlement cuts in the face of upcoming elections.

Meanwhile, the drag on the economy and the unhappiness of the 99% will continue with no real relief in sight because no in either party has the courage to repudiate the dogma that a sovereign fiat currency nation like the United States can have a long-term debt problem requiring a long-term deficit reduction solution. Truly, everyone in Congress needs to be replaced by people who understand the Modern Money Theory (MMT) approach to economics and who are willing to explain it to their constituents and to advocate for fiscal policies based on it.

(Cross-posted from New Economic Perspectives)

Photo by L. Marie under Creative Commons license

Rationalization and Obligation, Part VI: What He Ought to Do, What He Probably Will Do

6:46 pm in Uncategorized by letsgetitdone

This is Part V of a six part series replying to a claim by the President at his recent White House News Conference. Part I covered the News Conference and the first two (the selective default, and the exploding option) of seven options the President might use to try save the US from defaulting in the face of continued deadlock in the Congress on raising the debt limit or repealing the law enabling it in its entirety. Part II discussed Platinum Coin Seigniorage, invoking the 14th amendment to justify continuing to issue conventional Treasury debt instruments, and consols. Part III discussed premium bonds, and Treasury sales of the Government’s material and cultural assets to the Federal Reserve. Part IV, then evaluated all seven options in light of variations among them in likely degree of legal difficulties they might face, and also the likely impact of each on confidence in the bond markets, if used. Read the rest of this entry →

Rationalization and Obligation, Part V: Differences Are Everything

7:38 pm in Uncategorized by letsgetitdone

This is Part V of a six part series replying to a claim by the President at his recent White House News Conference. Part I covered the News Conference and the first two (the selective default, and the exploding option) of seven options the President might use to try save the US from defaulting in the face of continued deadlock in the Congress on raising the debt limit or repealing the law enabling it in its entirety. Part II discussed Platinum Coin Seigniorage, invoking the 14th amendment to justify continuing to issue conventional Treasury debt instruments, and consols. Part III discussed premium bonds, and Treasury sales of the Government’s material and cultural assets to the Federal Reserve. Part IV, then evaluated all seven options in light of variations among them in likely degree of legal difficulties they might face, and also the likely impact of each on confidence in the bond markets, if used. Read the rest of this entry →

Rationalization and Obligation, Part IV: Differences Among Options

7:05 am in Uncategorized by letsgetitdone

In Part I, Part II, and Part III, I listed and analyzed seven options, analyzed them and also pointed out that the President’s 14th amendment option, actually makes turning to the 14th as a justification for continuing to issue debt beyond the ceiling, a last resort, and also places an obligation on the President to exhaust other available options, whose legality is probable, but not finally determined by the Supreme Court. But, in his recent Press Conference, the President also failed to recognize any differences among the options in relation to his main point: that loss of public confidence caused by legal challenges would affect sales of debt instruments and other options including Platinum Coin Seigniorage (PCS).

Differences in levels of legal uncertainty among the options would surely affect the confidence issue. Option 1, selective default, seems legal, if not followed by Fed forgiveness of Treasury debt. It would probably have the effect of a partial government shutdown. But, as long as there’s no default on repayment of debt to everyone but the Fed, confidence related to buying Treasury debt should not be affected.

Option 2: the exploding option, is one of those that might result in both a legal challenge, and some uncertainty in markets, but I don’t think very much uncertainty, since whatever the Supreme Court decides about the legality of this, it’s hard to see them being able to do anything about it except ordering the Treasury and the Fed to stop breaking the law prohibiting the Fed granting credit to Treasury. Since the Treasury would be using the exploding option to acquire reserves from the Fed, but would not be issuing debt instruments, the Court wouldn’t be able to decide that the Government had no obligation to repay illegally issued Federal debt, which is the scenario the President used in his News Conference.

Option 3, is Platinum Coin Seigniorage (PCS). Legal questions about the coin have been raised, but as I said in Part II, the preponderance of opinion is that the coin is legal and will survive if challenged.

So, the question becomes whether a challenge to it will create a lack of confidence in markets affecting Treasury bonds? I really doubt that, however, since the “house ownership” metaphor, used by the President doesn’t apply to the coin, either. Its practical force comes from the idea that the market will reject debt instruments offered for sale after the debt limit is reached. However, the primary initial use of the coin would be to pay down the debt level, so no debt issuance would be involved in its use. Why should there be a problem with “bond market confidence” when debt repayment is continuing?

Only new creation of reserves by the Fed would be involved. So, the issue of confidence affecting debt marketability doesn’t arise in this case, since the private markets would not have to “buy” new reserves offered by the Treasury after the debt limit is reached, as they would questionable debt instruments issued by the President.

And certainly while legal challenges are going on, the President could be drastically reducing the debt subject to the limit by using coin proceeds to pay back debt, increasing confidence in markets with every significant payoff. Of course, this depends on whether the President mints a High Value Platinum Coin (HVPC), say $60 Trillion in face value, rather than “a small ball” TDC alternative, but that’s his choice, after all. So, in the end, whether there’s a problem with bond market confidence depends, in the end on the politics of choice, and not whether he uses PCS or not.

As for the Fed, it may or may not cooperate with the Executive on crediting the coin. But the law provides that in cases of disagreement in interpretation between the Fed Chair and the Secretary of the Treasury, that the view of the Secretary shall prevail.

In other words the Fed can be made to cooperate when it comes to crediting the coin, and it is highly doubtful that if the Fed is between the rock and the hard place of crediting the coin or allowing a default, that it will then choose the latter and risk the financial system collapsing. The Fed, after all, is pretty “chicken” about financial system crashes, and is likely to embrace its own version of There Is No Alternative (TINA), since, in addition to the rock and the hard place, the Fed’s compliance is unambiguously required in the law.

If the President did mint a really big coin, say the $60 T one, and then quickly paid off the intragovernmental and Fed debt, about $6.7 Trillion, and continued paying off short-term debt, and if the Court then granted standing, and, after six months or so, for example, declared his action unconstitutional, what would be the remedy the Court could implement to unwind the action, and the repayment of about $2 Trillion in debt to non-Federal entities? The Court might relatively easily be able to undo the $6.7 Trillion in repayment, but once the debt to non-Federal entities is redeemed; then it is redeemed. The former US bondholder “creditors” aren’t giving their money back.

As a practical matter the Court can’t do anything about that, since the reserves paid out are in private hands. Further, even if the Court ordered that the Treasury return the reserves used to repay the intragovernmental and Fed debt to the Fed and to issue new bonds to restore the status quo, all that would do is stop the President from paying down further debt, but still not eliminate the headroom under the debt ceiling he had created by paying down debt held by non-Government entities. So, even in this case of extreme reaction by the Court, he’d still improve the debt limit situation by minting the platinum coin, without taking the chance that the markets might reject the debt instruments without requiring higher interest rates.

Option 4, is the 14th amendment option nullifying the debt ceiling. The President has a point here, that if this were challenged in Court then bond markets might feel uncertain about buying bonds issued during the period the debt was exceeding the ceiling. However, even if the Court ruled not only that the debt issuance was illegal, but also that the debt instruments should not be honored, a very long-shot finding, I think, does anyone seriously think that the Congress would cause a default by refusing to guarantee those bonds after the fact of Treasury’s issuance of them? If you believe that, then I have the proverbial pretty big bridge to sell you.

The uproar would be far worse in that case than it was in relation to the issue of whether Federal workers would get back pay at the end of the shutdown or not. In any event as I said earlier, using the 14th amendment to justify violating the debt ceiling on grounds of constitutionality can only be a last resort when all other options haven’t worked. So, the President has an obligation to try the others before he even turns to this option.

Option 5 is the consols option. If challenged in Court, this is probably the least likely option to be overturned. The law doesn’t prohibit issuing consols, and while anyone with the money can sue over anything, the buyers of consols will certainly evaluate what the chances are that debt instruments of this type can be viewed as violating the debt ceiling, or as prohibited.

I think the chances here are slim and none, and that people would feel very comfortable buying consols because they would be confident a) that the Federal Government would not default on its interest payments, and b) that the consols would always be redeemable in private markets where buyers looking for these kinds of instruments would be willing to buy them. So, I think it’s incorrect to lump consol offerings into the same category as conventional bonds clearly issued in reliance on the 14th amendment and in obvious defiance of the debt ceiling. They would not be nearly as subject to doubt and uncertainty as conventional bonds would be.

Option 6, premium bonds, is another bond option that, like consols, seems to provide a way of escaping the debt ceiling while being less likely to shake the confidence of the bond market. I think that’s true because it’s hard to see what’s illegal about this kind of bond issue. All that’s different is a higher interest rate offering which allows Treasury to sell at a higher price at auction while obligating itself to a lower face value that must be repaid.

However, Matthew Yglesias and Kevin Drum are persuaded that such bonds are “. . . .bound to set off an avalanche of litigation and uncertainty about what’s really what.” Well, anything is possible, of course, but even if there is litigation aimed at this very simple and apparently legal expedient, why would that shake the markets very much? And if they did react with a bit of unsteadiness, wouldn’t there be a good deal less uneasiness than there would be with Treasury Bonds that might turn out to be unauthorized by Congress. I certainly think so.

Option 7, sales of Treasury material and cultural assets, is another option that involves the Treasury getting reserves from the Fed in return for an asset. It is in the same category, in this way, as the platinum coin, and the exploding option. But an asset sale, while possibly having the questionable political aspects I discussed earlier, is simpler and easier to understand than the exploding option, and less “out there” from the standpoint of financial practitioners and economists than the platinum coin. In addition, the Federal Government sells material assets continuously, but not to the Federal Reserve. However, I know of no legal prohibition against such sales. And faced with the choice of making such sales, or Government default threatening an international financial crash, I expect the Fed might well invoke TINA and take the plunge.

I also know of no reason why sales of assets like these would shake confidence in the markets. After all, the Treasury would be doing everything it can do to pay the debts of the United States and would be successfully doing so. So, why should that lead to “. . . an avalanche of litigation and uncertainty about what’s really what.” In Part V, I’ll continue this reply to the President’s TINA claim by summarizing my evaluation of differences among the options.

(Cross-posted from New Economic Perspectives.)

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