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 But, and this is critical, none of that money can be withdrawn except for congressionally appropriated expenditures; e.g., the Treasury cannot monetize the national debt except insofar as such expenditures are appropriated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).



16 Comments

But how would Wall Street and the City control us? Seems to be working against their interests and that’s not what their puppets are supposed to be facilitating.
-Abraham Lincoln, 1843 before Whigs in Springfield, Il.
from “How Andrew Jackson Destroyed the United States”
— Letter by FDR to Colonel House, dated 21 November 1932
(Col. Edward Mandell House, political advisor to W.W. was very instrumental in the creation of the Fed).
Yes, comrade wigwam, thank you for the partial precis of ppcs. A democracy is a good debtor for crapitalists because it is very difficult to cancel it’s debt – and it is very easy to manipulate it to borrow.
This legalistic mumbo-jumbo is all clever and suchlike but, as comrade northwest points out, what gives you any hope that you can outwit fraudsters?
I’m well aware that I cannot. I’m just passing on some relevant tidbits in hopes that someone(s) can, or at least will understand some of the possibilities.
Just passing down is what compradors do comrade. You hope to edify with a partial message. Yes, thanks for clarifying a clever “loophole” to crapitalist highjack, but you have to wonder whether the problem is that so much credence has been lost that a technical fix is really the difficult thing to convey.
Then, there’s also the problem that the whole sheistbang is a fraud.
The KC Crew’s a little like the O’Bummer supporters – everything’d be alright if it weren’t for the ‘publicans/conservatives/lib-retards. This finger pointing approach is to be expected when crapitalism falls apart,especially from the likes of “the best of all possible worlds” faith.
Amerka has a capitalist government. Always has had. Got to be capitalist monster #1 post-WWII. Slivering up platinum coin – some might call that clever – is a digression.
“is really {not] the most difficult thing to convey.”
You know, PPCS is the game of the good wizard.
And don’t blame this on a crisis of faith, comrade. Your huckster’s system has had it’s day. Good Gawd, Bill Black got his warning mid-80′s and he still hasn’t figured out that control fraud is what crapitalism’s about.
Pathetic.
In this interim time, comrade dear Ludwig, as more people consider the nature of capitalism and its inherent limits, including the fact that it may never be contained by regulation again…we need a few tools to call crap on the Fed’s monetary policy *and* the evils of domestic and global neoLiberal economics for what they are.
So many smart and dedicate people are attempting to do end runs around the big banks (including peer-to-peer lending), workers cooperatives and a host of other projects and planning sessions, including alternatives to big, corrupt unions, that focus on worker’s rights, and even challenging the concept of work itself as inherently good…added to which are the many movements in support of the planet’s resources as needing to belong the the people, not multinationals…I am often heartened by it all.
Imo, the world’s indigenous are now leading the way, and they’ve suffered under, and are extremely knowledgeable about, the institutions and economic models (especially capitalism itself) that have brought us to this dark point from which many believe there is already no escape.
Have a modicum of patience with us while we learn and examine other possibilities; educate us when you can (without rancor), and we’ll all be better for it. ;o)
My precious comrade O’Peel, capitalists are the experts at the end run (around capitalism). Everybody else is a crank-amateur.
How can I not respect it’s victims? Still, we can’t lie to each other or pretend that our clever insight should occlude the rest. Comrade wigwam and the strident PPCS wizards have violated rule #1.
First comes “Tell the whole truth” then comes “tell nothing but the truth”.
Tnaks for caring, comrade.
Ah, well, sweet patootie, what is truth to one is…a journey of discovery to another, I reckon. And I say this having flunked out of SD’s Martin Wolff Marxist economics classes (no, ssriously, folks…)
Black is coming to new realizations, and that’s a good thing. He’s an old warrior, as is Spitzer, who floored me in a recent video going crazy again by the minimal low-level Libor-fraud prosecutions only. He said at the end, “Capitalism works, folks, if (caveat, caveat, caveat…). Thing is, the fraud is now out in the open for all to see who care to see, as are Obomba’s drone assassinations, torture rendition by another name, all sorts of stuff even the Times reports now. Only no one cares cuz it ain’t their kin bein’ killed.
Look at the folks here squealing over Obomba doing round #1 of what he said he’d do to screw us, and most of them probably voted for him. It’s likely they’ll do it again in two months, but now…it’s their lives he’s fucking up more. Oh: enlightened self-interest.
Anyhoo, the MMTers, imo, are just using the existing framework of the Constitution to call out other alternatives NOW.
Hang in there babe; somethin’s gonna break soon. The Zapatistas are on the march again. ;o)
MMT ers believe and re-enforce the religion of money like any other high priest.
Meanwhile, wigwam. I liked this very much, thanks for it! I will use it to reply whenever anyone calls “weird” at PCS!
A small nit:
Actually, the need to be deposited in the Mint’s Public Enterprise Fund (PEF) Account. Once that account is credited, then Treasury can sweep the profits from the transaction into the Treasury General Account (TGA).
Hey LGID, thanks.
Omitting that other step in the deposit was a deliberate omission in hope of improving readability. I felt that omitting that level of indirection takes nothing away from the overall picture and keeps things as succinct as possible. Maybe I should add the word “ultimately” there to indicate that I’ve left out some steps. I’ve used that trick a few other places as well.
I’m really getting sick of people saying that directly violating a federal law and usurping Congressional authority is the President’s best option, while exercising the authority granted in federal law 31USC5112(k) is “weird.” But, even Bill Black fell into that nonsense during his recent interview with Paul Jay on The Real News Network.
And how can it be weird? We’ve been doing it on a smaller scale for 220 years, and nearly every economist insists that the federal government has a proverbial printing press from which to issue money to avoid defaults — I’ve posted quotes saying so from Krugman, Greenspan, Bernanke, and Galbraith in an earlier paper (to which Stephanie posted a link). And, in fact, the government has such a machine, but it’s not a printing press; rather it’s The Mint, which I guess qualifies as a “proverbial” printing press. So, how can it be “weird” to use it if top economists from across the spectrum, including a Nobel Pize laureate and chairs of the Federal Reserve recommend it.
Maybe I should throw that stuff in an yet another update.
The 14th-Amendment option would involve direct violation of a federal statute 31USC3101(b) that Obama himself bargained for and signed into law. At a minimum, it would cause a “constitutional crisis,” and would be very foolish, especially given the fact that he has an explicit statute 31USC5112(k) that give him a perfectly legal alternative.
Better than the 14th Amendment option would be the option of simply going limp, i.e., daring the GOP to shut the country down and making it clear that the blame for the consequences rests solely on them. However, I consider that option to be vastly inferior to issuing money to pay the bills.
I may have put words in their mouths; I just see step by step progressions and alternatives as a good thing. Some folks on Gar’s piece don’t get that he’s a socialist, offering step by great step alternatives to the capitalist Machine. When alternatives are strongly believed as beneficial, or that old paradigms, models and institutions are strongly believed to be harmful, by 10% of a population, many scholars say that tipping points have been reached.
This is a time for great change in consciousness and awareness, and I’m so glad so many good folks are digging in with other choices. ;o) I did a post a few months back on the American Autumn, and I keep digging it out of the cache so I’m reminded to check in with many of the programs and blossoming organizations that have been inspired by OWS and now Idle No More, etc., that I wrote about. Now if my brain weren’t made of Swiss cheese, I could simply recall them… ;oP
I have talked with people involved in “development,” and they tell me that it is much more important how firms are organized than how the economy is organized. If firms are governed correctly, society will prosper. If not, there’ll likely take the rest of society down with them.
That worker-owned bakery in San Francisco that was featured Michael Moore’s movie, “Capitalism, a Love Story,” is part of the Mondragon Coop movement from Spain that is starting to take hold in the U.S. It’ll be interesting to watch.
You may be able to weigh in if I finish my post on the Zapatistas; I know just enough, and vastly *not* enough, to write the post. But their feats have reminded me of the little I know of the Mondragon movement. I still think it’s highly likely that economic organization matters, but…what do I know? ;o)
Thanks, wigwam. Heady times.
‘They were the worst of times; they were the…er…most interesting of times.”
~ fractured Dickens