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

Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.