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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How Tony Blair's disingenuous line on Iraq eroded our faith in politicians

Not the Chilcot Report by Peter Oborne reveals how Blair exagerrated evidence from the intelligence services to parliament – and the public.

In this incisive book, Peter Oborne calls the invasion of Iraq “the defining calamity of the post-Cold War era” and I am inclined to agree. Not long after the March 2003 attack, I interviewed Adnan Pachachi, a former foreign minister and UN ambassador for Iraq. He told me that he had visited President George W Bush in Washington a few weeks before the invasion and begged him not to go ahead with it. The overthrow of Saddam Hussein would, Pachachi warned, lead inevitably to civil war between Iraq’s two main religious groupings, the Sunnis and the Shias. Bush was shocked. According to Pachachi, he had no idea that any such division among Muslims existed.

Granted, Bush was an ignoramus – but you would have thought that someone might have explained this crucial fact to him. Pachachi turned out to be right. Iraq has fallen into a disastrous religious civil war as a direct result of the invasion and Isis, a more extreme force even than al-Qaeda, has come to the fore. Nearly 5,000 coalition soldiers died; many hundreds of thousands of Iraqi civilians, perhaps a million, have lost their lives; and the man who led the whole terrible business didn’t know that the danger even existed.

Pachachi, like many politicians across the Middle East, found this puzzling. The US had never understood the Middle East, he said, but the British did; so why hadn’t Tony Blair warned the Americans what was going to happen? We know the answer to that: although Blair was far cleverer than Bush and had better advisers, his approach was always a subservient one. Like the entire British establishment, he believed that Britain’s influence in the world depended on sticking close to the US and he was prepared to be led around on a leash because he knew that this was the only relationship Bush’s people understood or wanted from him.

To “stand shoulder to shoulder” with Bush – at least, to stand closer behind him, head bowed, than any other national leader – Blair had to persuade the British people that Saddam posed a threat to them. Oborne, in fine forensic form, demolishes (his word) the notion that Blair was simply repeating what the intelligence services had told him about Saddam’s weapons and capability; he shows that Blair exaggerated and misrepresented the intelligence he was given.

Lord Butler, the former cabinet secretary who had investigated the government’s pre-invasion use of intelligence, said the same thing in a speech in the House of Lords in 2007. He described Blair’s approach as “disingenuous”: mandarin-speak for dishonest. Oborne quotes Butler at length:

 

The United Kingdom intelligence community told him [Blair] on 23 August 2002 that, “We . . . know little about Iraq’s chemical and biological weapons work since late 1988.” The prime minister did not tell us that. Indeed, he told parliament only just over a month later that the picture painted by our intelligence services was “extensive, detailed and authoritative”.

 

Oborne’s central point is that this dishonesty has done serious damage to the fundamental trust that the British people used to have in their rulers. There are all sorts of reasons why people have lost faith in politicians but it was the charismatic Blair – along with his head of communications, Alastair Campbell – who let us down the most.

Campbell is a former journalist who, even when he was the political editor of the Daily Mirror, seemed far more concerned with pushing a party line than with trying to report things truthfully. In May 2003, the BBC journalist Andrew Gilligan accused him of “sexing up” the dossier on Saddam’s weapons of mass destruction. Campbell was irate. In July, Dr David Kelly, the Ministry of Defence weapons expert who had briefed Gilligan, committed suicide. If, indeed, it was suicide – once you start losing faith in the ­official version of things, there is no end to it. And that is Oborne’s point.

Kelly’s death was followed by the scandalous Hutton inquiry, which managed to deflect attention from the questionable nature of the dossier to the way in which Gilligan had reported on it. However, although Kelly wasn’t a sufficiently senior source for Gilligan to base his report on, there is no doubt that Gilligan was essentially right: the intelligence dossier had been grossly hyped up. Campbell’s frenzied efforts to protect himself and Blair did huge damage to the BBC, the judiciary, the intelligence and security agencies and public trust in government.

Oborne’s excellent book is clear-headed and furious in its condemnation of Blair. But what about the Chilcot report, when it appears on 6 July? The ludicrous delay in publishing it has given people the expectation that it, too, will be a whitewash. Yet we are starting to get leaks that it won’t be – that it will be just as savage as Oborne would like. That is the only way we can start to drain the poison that has built up in our national life since Blair took the calamitous decision to follow the US into invading a country that its president knew zip about.

John Simpson (@JohnSimpsonNews) is the world affairs editor of the BBC

Not the Chilcot Report by Peter Oborne is published by Head of Zeus (208pp, £10)

John Simpson is World Affairs Editor of BBC News, having worked for the corporation since the beginning of his career in 1970. He has reported from more than 120 countries, including 30 war zones, and interviewed many world leaders.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad