A congressional appropriation declares a certain expenditure to be “appropriate,” thereby granting the necessary permission to withdraw a certain amount of money from the Treasury for a particular purpose. Per Article 1: Section 9: Clause 7: {\em No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law …}

An appropriation does not, however, issue money to cover the appropriated expenditure. Instead, Article 1 Section 8 gives Congress three powers to raise such funds: taxation [Clause 1], borrowing [Clause 2], and the minting of coins [Clause 5]. Congress has placed strict limits on the Treasury’s power to collect taxes and borrow money, e.g.:

The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) may not be more than $14,294,000,000,000, outstanding at one time, subject to changes periodically made in that amount as provided by law through the congressional budget process described in Rule XLIX [1] of the Rules of the House of Representatives or as provided by section 3101A or otherwise. [31USC3101(b)]

This law gives any session of Congress the power to repudiate (renege on) expenses appropriated by previous sessions, which is of course immoral, unethical, and possibly unconstitutional under Amendment 14, which states that “The validity of the public debt of the United States, authorized by law … shall not be questioned.”

Congress has, however, explicitly granted the Treasury power to mint coins of arbitrarily large denominations:

The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time. [31USC5112(k)]

Such coins are “legal tender” and can therefore be deposited into the Treasury’s General Account at the Fed, from which the Nation’s bills are ultimately paid. Therefore, there is no need for the Treasury to borrow money to meet the obligations of the United States. But, and this is critical, none of that money can be withdrawn except for congressionally appropriated expenditures; e.g., the Treasury cannot monetize the national debt except insofar as such expenditures are appropriated by Congress.

For the past 220 years, the Treasury has been paying a portion of each year’s expenditures via the markup (seigniorage) on the minting of coins — last year coin seigniorage covered about 1% of the tax deficit — Abraham Lincoln went even further and paid for the Civil War with printed fiat money (“Greenbacks”), as did the European powers to finance WW I, and as did Germany to finance its part in WW II.

All of the above is background to keep in mind the next time you read a financial/economic pundit declare that it would be “weird” for the Secretary of the Treasury to exercise his powers under 31USC5112(k) and recommend that he instead foment a constitutional crises by directly violating 31USC3101(b), which I think would be “weird” at best.

UPDATE: This just in from Reuters via HuffPo:

President Barack Obama vowed on Tuesday to avoid a repeat of last year’s divisive fight with Congress over an extension of the nation’s borrowing authority.

“While I will negotiate over many things, I will not have another debate with this Congress about whether or not they should pay the bills they have already racked up,” Obama said in remarks in the White House.

Conventional wisdom has it that, when Barack Obama says that something is non-negotiable, that’s a sure sign that it’ll soon be on the table. If, however, he really means this and this time has a plan other than caving, that plan will almost surely involve either violation of federal law or the use of the Treasury’s authority under 31USC5112(k).