The platinum coin is killed as America careens toward default

The platinum coin is dead, long live the debt ceiling.

On Saturday evening, the Washington Post's Ezra Klein dropped a bombshell: The platinum coin gambit – the plan to circumvent the American debt ceiling by minting a trillion-dollar coin and depositing it in the Federal Reserve – is dead. Klein writes:

That’s the bottom line of the statement that Anthony Coley, a spokesman for the Treasury Department, gave me today. “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” he said.

The Treasury's take on the law is one thing; but the Federal Reserve, as a quasi-independent body, is really what's put the kibosh on the whole plan. If it doesn't believe that using a platinum coin to circumvent the debt limit would be legal, that's it. The lynchpin of the plan was that the Treasury, after using powers granted to it through a loophole in a law intended to let it mint commemorative coins for collectors, would be able to deposit the coin in its account in the Fed. If the Fed won't take it, the plan's bust.

Joe Weisenthal, the most consistent advocate of the platinum coin, points out that it's hard to work out what point of law the Fed was actually trying to apply here:

It seems odd that the Fed would decide that there's some legal tender that it will recognize, and some legal tender that it wouldn't recognize.

Paul Krugman, who became a high-profile advocate of minting the coin last week, asks what the administration's plan is now, but also somewhat unfairly places the blame on Obama. Given the White House's comment to Buzzfeed focuses on the Fed, it seems like they weren't exactly behind the move to pre-emptively remove the bargaining chip from the table.

Regardless, the administration's position now is clear. The debt ceiling must be lifted, and they will offer no "concessions" to do so. With the platinum coin out of the equation – and with the so-called "constitutional option", where the President cites the 14th amendment's command that the validity of the public debt "shall not be questioned" and ignores the debt ceiling, ruled out by the White House last month – the Republicans can be under no illusions that if they fail to concede, America will definitely have a messy government shutdown, and will likely enter technical default on its public debt. The only question that they have to answer is whether they have an ounce of rationality left, or if they'll take the whole system down, themselves included.

Past experience suggests that the latter is worryingly possible. For one thing, conservative economists like John Cochrane have been minimising the effect of hitting the ceiling. Cochrane casts doubt on possibility of default by rightly pointing out that the Treasury has enough income to make debt repayments even if the ceiling is hit. But by ignoring the practical aspects of hitting the ceiling, he bypasses an important point. The treasury pays its bills with a vastly complex, automated system. It is not clear it has the technology to "prioritise" debt repayments, nor is it clear that to do so would be legal.

And even worse, those GOP members who do understand the likelihood of a default aren't too concerned. Politico's Jim Vandehei, Mike Allen and Jake Sherman write:

GOP officials said more than half of their members are prepared to allow default unless Obama agrees to dramatic cuts he has repeatedly said he opposes…

“For too long, the pitch was, we’ll deal with it next time,” said Rep. Jason Chaffetz, a conservative from Utah. He said GOP lawmakers are prepared to shut things down or even default if Obama doesn’t bend on spending. “No one wants to default, but we are not going to continue to give the president a limitless credit card.”

If the US did default on its debt – even just by paying a coupon a day late – the international knock-on effects would be massive, and unprecedented. Now that every option for preventing that has been taken off the table save for negotiating with the most radical congress ever, the financial community may start to take note.

Photograph: Wikimedia Commons

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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Why it's a mistake to assume that Jeremy Corbyn has already won

The shadow chief secretary to the Treasury on why the race to be Labour's leader is far from over.

They think it’s all over.

But they’re wrong.

The fat lady has yet to sing.

The commentary and reporting around the Labour party leadership campaign has started to assume we have a winner already in Jeremy Corbyn. The analysis, conjecture, predictions/complete guesswork about what happens next has begun in earnest. So we have seen speculation about who will be appointed to a Corbyn shadow cabinet, and “meet the team” pieces about Jeremy’s backroom operation.

Which is all very interesting and makes for the usual Westminster knockabout of who might be up and who might be going in the other direction pdq...

But I think it’s a mistake to say that Jeremy has already won.

Because I hear that tens of thousands of Labour party members, affiliates and registered supporters are yet to receive their ballot papers. And I am one of them. I can’t remember the last time I checked my post quite so religiously! But alas, my papers are yet to arrive.

This worries me a bit about the process. But mostly (assuming all the remaining ballots finally land in enough time to let us all vote) it tells me that frankly it’s still game on as far as the battle to become the next leader of the Labour party is concerned.

And this is reinforced when we consider the tens of thousands who have apparently received their papers but who have yet to vote. At every event I have attended in the last couple of weeks, and in at least half of all conversations I have had with members across the country, members are still making their minds up.

This is why we have to continue fighting for every vote until the end – and I will be fighting to get out every vote I possibly can for Yvette Cooper.

Over the campaign, Yvette has shown that she has a clear vision of the kind of Britain that she wants to see.

A Britain that tackles head-on the challenges of globalisation. Instead of the low-wage low-skill cul-de-sac being crafted by the Tories, Yvette's vision is for 2m more high skill manufacturing jobs. To support families she will prioritise a modern childcare system with 30 hours of fully funded child care for all 3 and 4 year olds and she will revive the bravery of post war governments to make sure 2m more homes are built within ten years.

It's an optimistic vision which taps into what most people in this country want. A job and a home.

And the responses of the focus groups on Newsnight a few days ago were telling – Yvette is clearly best placed to take us on the long journey to the 2020 general election by winning back former Labour voters.

We will not win an election without winning these groups back – and we will have to move some people who were in the blue column this time, to the red one next time. There is no other way to do it – and Yvette is the only person who can grow our party outwards so that once again we can build a winning coalition of voters across the country.