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.

Photo: Getty
Show Hide image

“If not evolution then revolution”: temperature rises in Catalonia as independence vote looms

Clashes between Barcelona and Madrid over the disputed referendum lead to protests and arrests.

Summer may finish today according to astronomers, but the heat in Barcelona has been steadily rising over the past few weeks. Things reached boiling point yesterday when the Spanish police arrested 14 Catalan officials responsible for organising a referendum on independence for the region. They also seized about 9.8 million ballots intended for this vote, which the Catalan government wants to hold on 1 October.

The Spanish central government, the conservative People’s Party (PP), is completely opposed to the referendum and has so far refused even to discuss it with the Catalan administration. This prompted the pro-independence Catalan parties in power to start planning it unilaterally.

On 6 September, the Catalan parliament passed the Self-Determination Referendum Act, which established how the vote will be organised and held. The question would be: “Do you want Catalonia to become an independent state with the form of a republic?” And since the electoral register can only be accessed by the Spanish authorities, whoever is allowed to vote in the Catalan regional elections can have their say.

Legal experts are divided over whether this kind of independence referendum is allowed by the Spanish constitution, which was approved in 1978. This was just three years after the death of fascist dictator Francisco Franco, and one year after the first democratic elections since the 1936-39 Spanish Civil War.

According to the constitution, sovereignty resides with the Spanish people. Opponents of Catalan independence claim it is therefore up to the whole of Spain to decide such a matter – and that in any case, it would have to be approved by the Spanish government.

But those in favour of the Catalan process argue that, given the complete lack of political will in Madrid regarding the referendum, the unilateral way is legitimate even if it may be declared illegal according to Spanish law.

As expected, two weeks ago the constitutional court suspended the Catalan Self-Determination Referendum Act, and yesterday’s police operation followed. Shortly after the raid began, during a government control session in the Spanish parliament in Madrid, prime minister Mariano Rajoy said “the rule of law has worked and it’ll continue doing so”. He insisted that the government was just “doing its duty”.

In this charged atmosphere, while Rajoy was still speaking, the MPs of the Catalan parties supporting the referendum walked out of the room, while those of the ruling PP chanted: “Leave here your salaries!”

Later in Barcelona, the Catalan regional prime minister, Carles Puigdemont, said Spain had “de facto suspended self-government in Catalonia and de facto applied the state of emergency”. Surrounding him during his speech, several other high officials looked funereal.

Applying further heat to the situation, the head of the Spanish tax agency signed an order on Tuesday that gave control of the Catalan public finances to the Spanish state. From then on, and at least until the end of the year, the Catalan administration isn’t allowed to allocate any money that hasn’t been sanctioned by Madrid.

However, the Spanish central government could still go even further and, using Article 155 of the constitution, suspend self-government in Catalonia – not de facto but officially. This extreme measure, never used in modern Spain, would in theory make possible what Catalans often joke about: tanks from the Spanish army would drive down the avenues of Barcelona.

Catalonia is the richest Spanish region, last year contributing 19 per cent of the country's GDP, while its population represents about 18 per cent of the total. It has long considered itself historically and culturally different from the rest of Spain, and yet just a decade ago an independence referendum would have been inconceivable.

In 2006, just 15 per cent of Catalans wanted “an independent state”. But that year the ruling PP referred the Catalan statute to the constitutional court, which declared part of it illegal. Then, after the PP won the general elections in 2011, the Spanish government started refusing to engage with Catalonia on the issue. 

Support for Catalonia becoming an independent state remains at around 41 per cent in favour and just under 50 per cent against. However, when Catalans were asked if they would vote in a referendum not sanctioned by Madrid, 67.5 per cent said yes, and of those, 62.4 per cent would vote “Yes”.

As of today ballot boxes are still being kept in a secret location, and Puigdemont and other Catalan officials insist the referendum will be held one way or another. In the past, the Catalan PM has said that if “Yes” wins, Catalonia will declare its independence within 48 hours.

For now the atmosphere is tense. On Tuesday, thousands of people took to the streets of Barcelona to protest against the police operation, in front of several offices of the regional government that were being searched.

The biggest demonstration was next to the Catalan finance ministry, which was being searched by the Guardia Civil, the Spanish paramilitary police. Many protesters were carrying the estelada, the unofficial flag of the independence movement – some worn it as a cape, others waved it in the air.

“We are protesting against this unjust situation”, said 47-year-old sales rep Ferran Batalla. “[The referendum] is not an aggression, it’s an option to have justice, an option to ask the people what they think."

The protesters chanted in Catalan, “We will vote!”, and in Spanish, “We want to vote!” Some were distributing flyers that read in Catalan, “We vote to be free”, and graffiti on a telephone booth said in Catalan, “Voting is not a crime.”

In English a giant banner on top of the building that hosts the Catalan finance ministry read: “Welcome to the Catalan Republic”. At one point, police coming out of the building were met with deafening whistles before the crowd started chanting in Catalan: “Out with the occupying forces!”

“I don’t want to fight anybody in Spain, but we’ve reached a point in which we can’t understand each other any more”, said Batalla, who complained about the fact that the central government has always sternly refused to talk about planning a referendum. “When the state doesn’t want to negotiate, and doesn’t want you to leave, and doesn’t want to hear from you, and mistreats you… They think we are stupid, and we are fed up and this is over, because they are making us feel as if we are the bad ones."

In nearby Plaça de Catalunya just a month ago, barely a flag could be seen among the huge vigil following the terror attack on Barcelona. And if that proved to be a show of social and political unity between Madrid and Barcelona, today the Spanish government on the one side, and the Catalan authorities and many of their people on the other, couldn’t be more polarised.

Many Catalans mention the Scottish independence referendum in 2014, and the agreement with Westminster that preceded it, as an example of how things could and should happen. But the two situations are actually very different.

Catalonia makes up a far larger chunk of Spain's population and economic output than Scotland does of the UK. Meanwhile, Spain has a constitution that the government considers untouchable, while there is nothing similar in the British legal framework.

Late Tuesday, Rajoy made an official statement urging the Catalan government to get back to  law and to democracy, and stop at last this “escalation of extremism”.

"This referendum can’t be held, it has never been legal nor legitimate,” he said, before adding: “And every illegal act and every infringement will get its response, which will be determined, proportional and rigorous”.

The PM’s intervention was followed by a huge cacerolada in Barcelona and many other Catalan cities – meaning people started banging pans in their windows in protest. In the streets, demonstrations went on through the night as people tried to prevent the Guardia Civil from leaving the Catalan finance ministry. The protest was mostly peaceful, but police cars parked outside were destroyed while people chanted a rhyme in Spanish: “¡Esta noche os vais sin coche!”, or “Tonight you will leave without a car!”

Finally, at around 4am the first Guardia Civil agents started leaving the building. There were moments of tension between the protesters and the Mossos d’Esquadra, the Catalan regional police, who opened the way for the Guardia Civil.

Wednesday began calmer, as both sides considered their next steps. The Spanish government remains focused on preventing the vote from happening, but has said it will be open to dialogue afterwards. “On 2 (October) we will talk and this new dynamic will take us to look for solutions because the coexistence of all Spaniards must continue in Spain... We’ll have to sit together and talk, and that we will do”, Íñigo Méndez de Vigo, the spokesperson for the government, told Spanish Radio. 

By the afternoon, there hadn’t been word of response from the Catalan authorities, but having invested so much in the referendum and seeing the atmosphere in the streets, it’s not clear how they could backtrack.

In a bar in the Eixample area of Barcelona, right outside the city centre, people discuss the situation over their mid-morning coffee. “What happened yesterday was shocking, independently of whether one supports independence or not,” says 37-year-old Italian IT consultant Paolo Mosca, who has lived Barcelona since 2013.

“I understand that within the Spanish legal frame the referendum isn’t legal, I know this, but within the Catalan legal frame it is legal because it was approved in the Catalan parliament”, says Sergi Pedraza, a developer and who was born in Catalonia as the son of Andalusian parents.

“The only possible solution, because the situation has become unsustainable, is a referendum, but one well planned and agreed with the state”, says Álex Castaño, 28, also a developer, originally from Seville and who has lived in Barcelona since 2015.

All three would be eligible to vote and Sergi says he’d vote “Yes” while Álex says he wouldn’t vote. Paolo says he’d vote “Yes” because he understands and supports the will of those who want independence. But he and Álex say they’d probably leave if Catalonia becomes independent, because of the uncertainty of what may happen to today’s cosmopolitan Barcelona.

By noon the street demonstrations had resumed, this time in front of the Catalan High Court, where hundreds of people, many of them again carrying and wearing esteladas, were protesting against yesterday’s arrests. Loud Catalan music could be heard.

“The government in Madrid is insulting the intelligence of the Catalan people,” says retired businessman Enric T Coromina, who adds that he studied law and is “politically from the right”. He is wearing a barretina, a Catalan traditional red wool hat, and a T-shirt saying in English: “Make no mistake, I’m Catalan, not Spanish”. He’s sitting on a folding chair; has brought food, water and a blanket, and says he’s ready to spend the night here. He’s sure the vote will happen – he will back “Yes”– and will be legitimate even if not legal under Spanish law.

"If evolution is not possible from within the system, then there’s only one other way left and that’s revolution, civil disobedience,” he concludes, as more and more people join the protest.