Fixing the debt ceiling with a trillion dollar platinum coin

Make a silly demand, get a silly concession.

It's always interesting seeing an idea whose time has come, and today's seems to be the "platinum coin option" for the US.

America will, in two months, hit the debt ceiling. Again. The federal government will be denied, by law, the money it has been ordered to spend, by law. The three options facing it, in conventional wisdom, are a total government shut-down, a default on its loans, or the raising of the ceiling.

Since the first two are, frankly, unthinkable, the last is the only thing the administration can do. The Republicans know this, and are prepared to leverage their image as an unhinged party which would metaphorically kill the hostages to gain policy concessions.

But there is actually a fourth option. It's leveraging a quirk in the laws of the nation, but it is, by any reading of those laws, entirely legal. United States law says:

31 USC § 5112 (k) The Secretary [of the Treasury] 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.

That is: at any time, the Treasury Secretary – Tim Geithner – can mint platinum coins in any denomination.

The other important aspect is how government spending is actually accounted for. The Treasury has a "bank account" at the Federal Reserve. When it pays someone, it's the Fed which hands the money over. When it needs money to put in that bank, it sells bonds at auction.

The debt ceiling is, in that simple version of the story, basically a ban on the Treasury selling any more bonds. As a result, it's bank account will run dry, and all hell will break loose.

But if Geithner mints a trillion dollar platinum coin, he can just waltz over to the Fed, deposit that, and the government's ability to spend is restored.

The plan sounds too good to be true, but it's really not. Joe Weisenthal has a bumper post debunking the biggest myths about it, but the trick to understanding it is to think of it as a legal, not monetary, trick. In terms of the real economy – outside of strange intragovernmental transfers designed to get around bizarre anachronistic limits – nothing has changed. The state is still taking money in through borrowing and taxing, and still putting money out through spending. It's just some of the borrowing is transferred from the Treasury, which does it under the authority it has to raise the national debt, to the Federal Reserve, which does it under the authority it has to borrow against assets it holds. Like, for instance, a trillion dollar coin.

This plan has been knocking around for years, now. It was first suggested during the last showdown, in 2011, by Pragmatic Capitalist's Cullen Roche. Weisenthal jumped on board, and then slowly so did others.

But in the last couple of days, there has been a White House petition calling for the President to do it, discussions in Congress, Paul Krugman mulling over the idea and a Huffington Post front page on it.

But the best argument has been Josh Barro's in Bloomberg. Barrow takes the legal quirks of the situation, and applies them to a political analysis. After all, although the President has the power to do it, doesn't mean it wouldn't be extremely politically damaging to actually go ahead with it. Barro's solution:

Hitting the debt ceiling isn't an option. It's no way to run the country, and Republicans know that. So, a debt-ceiling increase shouldn't count as a "concession," and it's nutty for Obama to have to give substantive policy ground to get one.

Monetizing deficits through direct presidential control of the currency, in lieu of borrowing, is also no way to run a country. It's silly, and it's perfectly legal. Agreeing not to do so is therefore the ideal "concession" for Obama to offer in return for Republicans agreeing to end the threat of a debt-default crisis.

Make a silly demand, get a silly concession. Perfect!

A non-platinum, single dollar coin. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The biggest divide in politics is not left against right, but liberals against authoritarians

My week, including a Lib Dem membership rise, The Avalanches, and why I'm putting pressure on Theresa May over child refugees.

It is a boost for us that Nick Clegg has agreed to return to the front line and be our Brexit spokesperson. I hadn’t even had a chance at our meeting to make him the offer when he said: “Before we start, I’ve been thinking about this and want to take on the fight over Europe.”

With Labour apparently willing to give the Tories a free pass to take us out of Europe, the Liberal Democrats are the only UK-wide party that will go into the next election campaigning to maintain our membership of the EU. The stage is remarkably clear for us to remind Theresa May precisely what she would be risking if we abandon free trade, free movement, environmental protection, workers’ rights and cross-border security co-operation. More than a month on from the referendum, all we have heard from the Tories is that “Brexit means Brexit” – but they have given us no clue that they understand what that means.

 

Premature obituaries

Not long ago, the received wisdom was that all political parties were dying – but lately the supposed corpses have twitched into life. True, many who have joined Labour’s ranks are so hard left that they don’t see winning elections as a primary (or even a desirable) purpose of a party, and opening up Labour to those with a very different agenda could ultimately destroy it.

Our experience has been happier: 20,000 people joined the Liberal Democrat fightback in the wake of the 2015 general election result, and 17,000 more have joined since the referendum. We now have more members than at any time this century.

 

Breaking up is hard to do

Journalists have been asking repeatedly if I want to see the break-up of the Labour Party, with moderates defecting to the Liberal Democrats. I have been clear that I am not a home-wrecker and it is for Labour to determine its own future, just as I focus on advancing the Liberal Democrat cause. Yet I have also been clear that I am happy for my party to be a home for liberals of whatever hue. I enjoyed campaigning in the referendum with a variety of progressive figures, just as moderates from different parties shared platforms in 1975. It struck me that far more unites us than divides us.

That said, not all “moderate” Labour figures could be described as “liberal”, as John Reid demonstrated as Labour home secretary. The modern political divide is less left v right than authoritarian v liberal. Both left and right are looking increasingly authoritarian and outright nasty, with fewer voices prepared to stand up for liberal values.

 

What I did on my holidays

Time off has been virtually non-existent, but I am reading A Wilderness of Mirrors by Mark Meynell (about loss of trust in politics, the media and just about everything). I’m also obsessively listening to Wildflower by the Avalanches, their second album, 16 years after their first. It’s outstanding – almost 60 minutes of intelligently crafted dialogue, samples and epic production.

During the political maelstrom, I have been thinking back to the idyllic few days I spent over half-term on the Scottish island of Colonsay: swimming in the sea with the kids (very cold but strangely exhilarating ­after a decent jog), running and walking. An added bonus is that Colonsay is the smallest island in the world to have its own brewery. I can now heartily recommend it.

 

Preparing for the next fight

The odds are weirdly long on an early general election, but I refuse to be complacent – and not merely because the bookies were so wrong about Brexit. If we have learned one truth about Theresa May as Prime Minister so far, it is that she is utterly ruthless. After her savage cabinet sackings, this is, in effect, a new government. She has refused to go to the country, even though she lectured Gordon Brown on the need to gain the endorsement of the electorate when he replaced Tony Blair. Perhaps she doesn’t care much about legitimacy, but she cares about power.

You can be sure that she will be keeping half an eye on Labour’s leadership election. With Jeremy Corbyn potentially reconfirmed as leader in September against the wishes of three-quarters of his MPs, Mrs May might conclude that she will never have a better chance to increase her narrow majority. Throw in the possibility that the economy worsens next year as Brexit starts to bite, and I rule nothing out.

So, we are already selecting candidates. It is vital that they dig in early. As we are the only party prepared to make the positive case for Europe, such an election would present us with an amazing opportunity.

 

Sitting Priti

David Cameron pledged to take an unspecified number of unaccompanied children from camps across the Continent. I am putting pressure on Theresa May to turn that vague commitment into a proper plan. Having visited such camps, I have been fighting for Britain to give sanctuary to a minimum of 3,000 unaccompanied children, who are currently open to the worst kinds of exploitation. We have heard nothing but silence from the government, with underfunded councils reporting that they are not receiving the help they need from Whitehall.

Meanwhile, it remains government policy to send refugees to Turkey – whose increasingly authoritarian government has just suspended human rights protection.

As if all of this were not grim enough, we have a new Secretary of State for International Development, Priti Patel, who has said that she thinks aid should be used largely to promote trade. As someone who wants our country to be respected around the world, I find this plain embarrassing. Actually, it’s worse. It’s shaming. As with Europe, so with the world: the ­Conservative government is hauling up the drawbridge just when we need more than ever to engage with people beyond our shores.

Tim Farron is the leader of the Liberal Democrats. To join the party, visit: libdems.org.uk/join

Tim Farron is leader of the Liberal Democrats.

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue