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Debt Ceiling Unconstitutional


This idea has legs.  Tom Hickey pointed out a few weeks ago that the idea was getting a bit of attention.   I thought that would be the last we see of the idea.

But people are looking at this closely.

Brad Delong calls it Plan B.

Firedoglake hears rumors that Tim Geithner is thinking about this option.

Mike Konczal seems to think it is viable.

I sure hope someone keeps this meme going.

[Update from Tom Hickey:  People are keeping this going, and prominent conservatives are signing onto the idea.   Plus, I forgot that this was THE 14th amendment.  The 14th is the the one that abolished slavery, and made it clear that traitors to our great nation should not be allowed to hold any government power in the U.S.

Traitors...hmmm.  Why would opposing paying the debts of the United States be so closely associated with opposition to human freedom, and being a traitor to the United States?  It's almost as though opposing paying government debt is strongly associated to being a traitor to the United States.]

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  1. Tom Hickey
    July 5, 2011 at 1:36 pm

    Conservative Bruce Bartlett has been on it, too. Today he has an even more comprehensive post. Check out the stuff he links to. The Abramowicz paper even mentions Perry v. US.

    This seems to be getting some traction on both left and right.

  2. beowulf
    July 5, 2011 at 2:08 pm

    There’s no constitutional crisis if the Administration takes care that the laws be faithfully executed. Secretary Geithner could sidestep the debt ceiling this afternoon by ordering the West Point Mint to strike a 1 oz. $ 1 trillion coin. Tsy can then present the jumbo coin at the NY Fed to buy back $1 trillion in Fed-held debt. The Fed has to accept it, mission accomplished (Since we don’t live in Ron Paul’s alternative currency utopia yet, a creditor can’t refuse legal tender paid in to settle a debt).

    “(h) The coins issued under this title shall be legal tender… (k) 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.”.
    http://www.law.cornell.edu/uscode/31/usc_sec_31_00005112—-000-.html

    • Tom Hickey
      July 5, 2011 at 3:25 pm

      While that is true, beowulf, I would prefer to see the debt ceiling challenged as unconstitutional in order to get rid of the dumb thing ASAP. I am not a constitutional lawyer or scholar, but Perry seems pretty clear to me, unless the sitting SCOTUS chooses to reverse precedent if a case would get there. But it seems that only Congress acting through a joint resolution would have standing to challenge the president, and there aren’t the votes for it.

      The platinum con is a good gambit to end the controversy over the US “running out of money,” and I would definitely trundle it out after the debt ceiling limit is canned on constitutional grounds to undercut all the bankruptcy talk.

      But politically, both options are too strong for this president to consider, I am afraid. Unlike the opposition he would rather sell out his base because the Dem base has indicated over and over that it can be rolled. Until that ends, I don’t expect to see Democratic politicians stand for anything on principle. They are a bunch of losers.

      • TC
        July 5, 2011 at 3:50 pm

        I agree on this. Get rid of this law asap.

        I’d also imply that people who bring into question the ability of the U.S. to pay its bills are anti-U.S.

        As for the trillion dollar coin…well technically its’ possible, but it’s so far outside the mainstream of thought that I have a hard time advocating it. It seems like something that Ron Paul would advocate if he wasn’t a goldbug. It’s got a whiff of crank about it.

        I’d advocate it as “technically possible, but politically difficult” funny idea – something we could do but wouldn’t . I think this way people can think about it, think through the way it works, and further their understanding of how money works. But since its just an example, we aren’t “cranks.”

        • Tom Hickey
          July 5, 2011 at 6:19 pm

          I that the platinum coin gambit is useful in showing up the ridiculousness of the current political impositions on the existing system, namely, that fictitious accounting is necessary at the vertical (governmental) level. The idea is that the the cb and the treasury are separate, and, indeed, a lot people, probably most, think that the Fed is a private institution owned by the bankers to whom taxpayer pay interest for money creation, as borrowers do in the case of commercial banks.

          The accounting is fictitious because the assets and liabilities that balance the cb and treasury’s books are just made up. the reserves and FRN are cb liabilities, and tsys are treasury liabilities. The reality is that government issues both in order to create the semblance of balance in a double entry system. But it is just fictitious because it is all intra-government.

          The fact that there is a no treasury overdraft rule and no direct exchange of tsys for reserves doesn’t change that. All it serves to do is create the impression that bond vigilantes control the yield curve, hence, act as a financial buffer to prevent inflation. But operationally that is a shame, as QE proves. The cb controls not only the overnight bank rate but can also manage the yield curve as well if it chooses to do so.

          The platinum con gambit reveals the asininity of this accounting fiction based merely on tokens.

    • wh10
      July 5, 2011 at 5:52 pm

      Beowulf- this document from the OLC during the Clinton debt ceiling years does not identify your solution as a potential way to “manage the debt.” http://www.clintonlibrary.gov/_previous/KAGAN%20COUNSEL/Counsel%20-%20Box%20006%20-%20Folder%20011.pdf

      We already knew the lawyers don’t understand this stuff, but part of me would expect them to pick out this minutiae.

      • wh10
        July 5, 2011 at 5:54 pm

        I would wish you could submit your idea to the White House, and we could see their reaction. Can’t believe they can be so oblivious.

      • beowulf
        July 6, 2011 at 12:57 am

        Kagan’s OLC memo was drafted September 1995. The amendment to the Coinage Act that added platinum coin authority (31 USC 5112(k)) wasn’t signed into law by President Clinton until October 1996 in the same Omnibus Appropriations Bill (Pub. L. 104-208) that created the rather flexible Mint Public Enterprise Fund, which extinguished the budgetary distinction between circulating coins and collectible coins; the Secretary can sweep the sales proceeds of both into TGF as miscellaneous receipts).

        Checking the Library of Congress, I see that that the ORIGINAL version of subsection (k) was rather narrower;
        “quantity and of such variety as the Secretary determines to be appropriate” was changed to (in final version) “specifications, designs, varieties, quantities, denominations, and inscriptions”. The key word is “denomination”, the coin’s face value. Related to that, the original bill tied sales price to coin’s “market value” (which presumes denomination will be less than metal’s market value), final bill is silent.
        http://thomas.loc.gov/cgi-bin/query/z?c104:H.R.2018.IH:

        Maybe its a happy accident, but between the platinum coins and the Mint PEF, it appears somebody– perhaps after reading Kagan’s memo– put a video game-style “cheat code” into the US Code. Ha ha, sounds like something Pete Stark would do, but he sits on Ways & Means, not Appropriations. :o)

        • beowulf
          July 6, 2011 at 1:27 am

          Oh, if you’re not familiar with Pete Stark… He’s like the crazy old man in a Stephen King novel who turns out to be the only one in town who knows exactly what to do to save everyone from doom. This video from the early 90s is great, Congressman Stark blows a brain gasket (“Get the f**k out of here or I’ll throw you out the window”) but not before accurately explaining how our monetary system works.

        • wh10
          July 6, 2011 at 7:26 am

          Wow! Very interesting indeed… It’s the cheat code waiting to be used! How’d he sneak that one in there? That video is hilarious by the way. Some MMTer needs to reach out to him and get him on board.

      • beowulf
        July 6, 2011 at 8:32 am

        wh10, I’m sorry if I didn’t make my point clear…
        That 1996 law was an Appropriations bill, so the amendments were slipped in by someone on the House or Senate Appropriations committees. Since Stark isn’t on Appropriations, it certainly wasn’t him. Maybe I just wanted an excuse to post that video. :o)
        It probably was just a happy accident due to congressional inattention to detail. But it is fun to imagine someone putting a cheat code into law.

        • wh10
          July 6, 2011 at 12:35 pm

          You made it clear, it was just early in the morning, and I didn’t read properly haha.

  3. Clonal Antibody
    July 5, 2011 at 4:24 pm

    You have to realize, that the 14th amendment, which made emancipated slaves persons, was interpreted by the USSC to maintain that corporations were also persons.

    I think that the coin idea is better, because it gets rid of the whole accounting deficit issue. You have to remember why coinage was not considered “printing money” — until 1964, coinage was all precious metals (excluding pennies and nickels) – gold and silver before 1933, and silver till 1964

  4. July 5, 2011 at 5:37 pm

    There is a discussion of this going on at Matt Yglesias’ place of a similar nature:

    http://thinkprogress.org/yglesias/2011/07/05/260978/the-significance-of-the-constitutional-option/

    The idea is going viral, but I expect the administration to poo-poo the idea, because they are chumps.

  5. beowulf
    July 6, 2011 at 9:25 am

    A President declaring a law unconstitutional and ignoring is a pretty bold step. If you can get the result you want without violating an Act of Congress (even one you know is unconstitutional), why make it hard on yourself?

    So I like the coinage step because it island hops General MacArthur-style (versus Nimitz’s policy of landing Marines in front of enemy strongholds). If the coinage step wasn’t available and you had to use the “constitutional option” I’d want to use a 14th Amendment in a flanking attack instead of a head-on attack on the debt ceiling. How do you outflank the debt ceiling without declaring it unconstitutional? There are several kinds of public debts that are not counted in the debt ceiling, most notably, US Notes (“Lincoln Greenbacks”).
    http://www.law.cornell.edu/uscode/31/usc_sec_31_00005115—-000-.html

    The last time Congress touched that law was 1875 and its still on the books. Section A is a winner (the Secretary can create as many US Notes as he wishes in the form he sees fit, so paper or electronic), section B is the problem with its limitation on notes in circulation and bans their use as reserves. However, 1. latter statutes control earlier statutes, Federal Reserve Act as amended allows for deposit of all legal tender, so US Notes could be held as reserves, 2. the notes in circulation limit refers to their use as cash If Fed banks hold them as reserves (that don’t count against the debt ceiling!), they aren’t in circulation– after all, T-bonds and T-notes specifically lack “the circulation privilege” and they’re used as reserves. 3. The constitutional sucker punch– There is no way that the Administration can abide by both the 14th Amendment and Congress’s most recent (2010) debt ceiling law without striking section B. Every American knows about the debt ceiling, but who’s ever heard of the National Bank Act of 1875? No one will miss it.

    • July 16, 2011 at 11:10 am

      Beowulf, are you saying here that the Federal Reserve Act and the bank act of 1875 are in conflict, and that given the later Act, Treasury now possesses an unlimited authority to produce US notes as long as they’re held in reserve? If so, does this mean that if the notes are deposited in the TGA, the Fed would have to credit the TGA in the amount of the deposit, add the amount to its own non-circulating reserves and enable the Treasury to spend Congressional Appropriations out of that account?

      • beowulf
        July 17, 2011 at 12:01 am

        That would be the theory, I wouldn’t advise the administration to go down this route since platinum coinage is a much stronger argument legally. After all, every Secretary of the Treasury since Hamilton has created fiat coin money and the law is unambiguous. However if that wasn’t on the books, US Notes are the next strongest play.

  6. Clonal Antibody
    July 6, 2011 at 10:55 am

    beowulf :
    Oh, if you’re not familiar with Pete Stark…

    I was thinking of getting together some of the staffers for the Bay Area congressional delegation and do a MMT education for them, including the coin cheat sheet. This would include both Stark’s staff as well as Pelosi’s staff. Anybody willing to help on that?

    • beowulf
      July 6, 2011 at 10:12 pm

      You can do worse than starting with Cullen’s one page (well, one webpage) summary.
      http://pragcap.com/resources/understanding-modern-monetary-system

      As for a one paragraph explanation, Jamie Galbraith’s foreword to Warren’s book is hard to beat.
      “Modern money is a spreadsheet! It works by computer! When government spends or lends, it does so by adding numbers to private bank accounts. When it taxes, it marks those same accounts down. When it borrows, it shifts funds from a demand deposit (called a reserve account) to savings (called a securities account). And that for practical purposes is all there is. The money government spends doesn’t come from anywhere, and it doesn’t cost anything to produce. The government therefore cannot run out.”
      http://www.correntewire.com/fed_money_spreadsheet

      If they don’t understand that much, then the absurdity of the debt ceiling isn’t apparent. Then its merely a question of which is the best way to overcome an archaic taboo. I can email you more stuff offline if you wish.

      • Clonal Antibody
        July 7, 2011 at 8:11 pm

        Beowulf,

        My e-m is my handle without the space at gmail

  7. July 6, 2011 at 2:37 pm

    @beowulf

    I agree that the seigniorage track may be more viable, provided it gets us through this absurd debt-limit thing without creating a Constitutional crisis. I hope they are aware of the other strategies you brought up but I have no faith in them putting up a fight.

    The trouble with these stealth strategies is the Conventional Wisdom™ comes down hard on anything that actually might work, so we can’t get anything done.

    I have lost all faith in this administrations ability to negotiate or fight for anything. They give ground before the negotiating even starts.

    This is coming from a guy that was a Republican for his whole life, woke up just in time to go all-in for Obama in 2008, even manning the phones and knocking on doors.

    Now I feel like electoral politics do not provide the tools to make changes in the system, although it isn’t lost on me that I share in the blame for letting things get this far.

    One party is looney and the other is afraid to govern. Both have been captured by corporate money.

    • beowulf
      July 6, 2011 at 10:18 pm

      Paul Mell, you should check this group, Fix Congress First. I’m afraid they’re right that nothing gets reformed until campaign finance is reformed.
      http://fixcongressfirst.org/about/

      • Tom Hickey
        July 6, 2011 at 10:48 pm

        “nothing gets reformed until campaign finance is reformed.”

        I’ve been saying that for some time, but that doesn’t mean that some meaningful incremental change is not possible, nor it is impossible to stop some bad stuff from happening.

        BTW, I was listening to NPR while driving to the store this afternoon, and constitutional law scholar Jeffrey Rosen was being interviewed on the constitutionality of the debt ceiling. He mentioned Perry in a positive light. This is getting traction.

  8. JCD
    July 6, 2011 at 9:59 pm

    Uhh, the Thirteenth Amendment abolished slavery …

  9. Clonal Antibody
    July 7, 2011 at 8:00 pm

    JCD :
    Uhh, the Thirteenth Amendment abolished slavery …

    Yes you are right about the abolishment of slavery. But that was not what I was talking about. The fourteenth allowed for the freed slave to be recognized as a legal person. It was what allowed the Dred Scott ruling to be overruled. This amendment was later used in the Santa Clara County vs Southern Pacific Railroad to allow the same logic to be used to make corporations “persons”

  10. July 8, 2011 at 7:37 pm

    Except that the 13th didn’t abolish slavery. Came close, but there’s a big loophole – prisoners. The USA yaps at China and other countries for using prison slave labor – and does exactly the same thing, sometimes hiring them out to big companies. A corporate/bankster wetdream is to make enough behavior illegal – basically anybody who doesn’t commit their sort of crimes – so we can have the good old days of slavery back. Sounds dystopian? Well, count the ways today’s reality would look dystopian in the eyes of the USAns of the postwar era.

    • Tom Hickey
      July 9, 2011 at 11:00 am

      If anyone said this a few years ago, I would have thought it delusion. But now it is reality with prison privatization and rent out prisoners at low wages. The fact that they are “paid” is the justification that it is not slavery.

      But look at the incentive structure and this rotten game immediately becomes evident. It is really way beyond the pale for America and yet another national shame.

    • Clonal Antibody
      July 9, 2011 at 11:34 am

      See Charley2u’s article at Re: The People – A critical examination of Kevin Carson’s Mutualism (Part One)

      The Constitution actually allows this practice in the very amendment that outlawed slavery:
      Thirteenth Amendment – Slavery
      And Involuntary Servitude

      Section 1. Neither slavery nor
      involuntary servitude, except as a punishment for crime whereof the
      party shall have been duly convicted, shall exist within the United
      States, or any place subject to their jurisdiction.
      Section 2. Congress shall have power to
      enforce this article by appropriate legislation.
      For decades this amendment was used to justify state action that in
      essence, reproduced all the vilest practices of slavery. How soon will
      it be before these laws are applied to the 99er population?

      • beowulf
        July 14, 2011 at 2:31 pm

        The key word is involuntary. IF the govt provides a job paying at least minimum wage to anyone who shows up by 9am (calling it “workfare” will get you farther politically than “job guarantee”) how is that a bad thing?

        Duly convicted of a crime is also important. the inefficiency of American government does have its benefits. Cops arrest, DAs prosecute, juries convicts, judges sentence, state runs prison (sometimes both sheriff arrests and runs jail but other functions are never combined)– oh and Feds fund unemployment and welfare… and the DOJ Civil Rights Division. Innocent people have been arrested simply to be used for slave labor only when all of the above are on the same page– that was true in the Jim Crow era South, not true at all today.

        The value of prison labor isn’t the “free labor”, its because jail is both dangerous and boring. Prisoners are eager to do so something something more productive than sitting on a bench, and prison wardens would rather use a carrot than a stick to keep prisoners from beating each other up, work details are offered as a reward for good behavior.

        • Tom Hickey
          July 14, 2011 at 2:49 pm

          I like “employment assurance.” (Not sure who gets the credit for coining it.)

  11. July 13, 2011 at 1:57 am

    If one believes that jumbo coin seigniorage can be used to facilitate deficit spending Congressional Appropriations, then it follows that the debt ceiling isn’t unconstitutional in the present situation because it is not stopping the president from obeying all his Congressional mandates. I’d made the case here: http://www.dailykos.com/story/2011/06/30/990018/-The-Debt-Ceiling-Is-Not-Unconstitutional,-Right-Now!?via=history

    and drawn out its implication here:

    http://www.dailykos.com/story/2011/07/11/993352/-Coin-Seigniorage,-the-Debt-Limit,-and-the-Presidents-Duty?via=history

    Simply put, if Congress won’t raise the debt ceiling, then the President has the duty to use coin seigniorage first. Only, if that proves infeasible, due to some legality we’ve failed to consider, would he have an obligation to challenge the constitutionality of the debt ceiling.

  12. July 16, 2011 at 6:57 am

    I don’t have the URL handy but you should check out Matt Yglesias on the subject too.

  13. reserveporto
    January 9, 2013 at 10:05 pm

    Some random assertions that may or may not be accurate…

    I must dispute the point that the trillion dollar coin, even if it is used to buy Fed-held Treasuries, cannot create inflation. In a sense, that’s an accurate statement, because the Fed-held debt has already created whatever inflation it was going to create when it was spent by the Treasury. The inflation, if it occurred, occurred in the past and tranforming that debt into currency does not create new inflation since it was already transformed into currency when it was purchased by the Fed. It’s also inaccurate since it frees the gov’t to undertake further deficit spending which may or may not be inflationary.

    As for whether it would be inflationary really depends on the public’s demand for financial assets.

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