an unanticipated consequence of
Jack M. Balkin
Jack Balkin: jackbalkin at yahoo.com
Bruce Ackerman bruce.ackerman at yale.edu
Ian Ayres ian.ayres at yale.edu
Mary Dudziak mary.l.dudziak at emory.edu
Joey Fishkin joey.fishkin at gmail.com
Heather Gerken heather.gerken at yale.edu
Mark Graber mgraber at law.umaryland.edu
Stephen Griffin sgriffin at tulane.edu
Bernard Harcourt harcourt at uchicago.edu
Scott Horton shorto at law.columbia.edu
Andrew Koppelman akoppelman at law.northwestern.edu
Marty Lederman marty.lederman at comcast.net
Sanford Levinson slevinson at law.utexas.edu
David Luban david.luban at gmail.com
Gerard Magliocca gmaglioc at iupui.edu
Jason Mazzone mazzonej at illinois.edu
Linda McClain lmcclain at bu.edu
John Mikhail mikhail at law.georgetown.edu
Frank Pasquale pasquale.frank at gmail.com
Nate Persily npersily at gmail.com
Michael Stokes Paulsen michaelstokespaulsen at gmail.com
Deborah Pearlstein dpearlst at princeton.edu
Rick Pildes rick.pildes at nyu.edu
Alice Ristroph alice.ristroph at shu.edu
Brian Tamanaha btamanaha at wulaw.wustl.edu
Mark Tushnet mtushnet at law.harvard.edu
Adam Winkler winkler at ucla.edu
Secretary Tim Geithner had a troubled look as he was ushered into the Oval Office. Senate Majority Leader Harry Reid and Vice-President Joe Biden were already there.
"Tim, did you put our topsecretplan to solve the debt crisis into place?" President Obama asked.
"Yes, Mr. President, but we've hit a bit of a snag."
"What top secret plan?" Reid interjected. "Why wasn't I informed about it?"
"Well, if you knew, it wouldn't be top secret, now would it?" Biden chortled.
Reid shot him a dirty look.
"Don't worry, Harry," Obama said calmly. "Tim, explain our fail safe to the Senator." "As you know," Geithner began, "we have very limited options if we don't raise the debt ceiling by August 2nd. We're on record rejecting the idea that the President can borrow money without Congress's approval, even if failing to do so would destroy the economy."
"Yes, I know," Reid replied, "you shot down the Fourteenth Amendment constitutional option a few weeks back."
"We had to. Our lawyers told us that as long as the President can work within existing laws, he can't go beyond what Congress has authorized."
"And so ..." Obama urged him on.
"And so we started going through the statute books looking for already existing authorizations that we could use.
"It turns out that there aren't that many. We can't issue extra bonds because of the debt ceiling. We could sell off government property, but there's no time to hold an auction to raise two trillion dollars of property.
"That left one other possibility. We could use coin seigniorage."
"Senior what?" Reid exclaimed.
"Seigniorage. Sovereign governments like the United States can print their own money. We have a system of fiat currency and we've been off the gold standard for many years now. With fiat currency, you issue coins and simply assert that they have a certain value, which may have little to do with the value of the raw materials you use to make them. But as long as people believe that your money is worth something, the system works.
"The difference between the face value of the coin and the cost of the materials it takes to produce it is called seigniorage. So if you create a hundred dollar coin made mostly of copper and nickel, the seignorage is likely to be close to a hundred dollars. That's new monetary value pumped into the system."
Geithner continued: "Now it turns out that under federal law, there's a limit to how much paper money we can have in circulation at any time.
"However, there's no limit to the amount of coinage we can make. There are rules that limit what we can do with gold, silver, copper, and other metals. However, 31 U.S.C. Section 5112(k) says that we can print platinum coins in any denomination at our discretion:
(k) The Secretary 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.
"So we told the Mint to make a couple of trillion dollar platinum coins. Then, if the President gives the order, the Mint deposits the two coins in its account at the Federal Reserve. The coins are legal tender. We direct the Federal Reserve to move this money into the Treasury's accounts, and we are up around two trillion dollars.
"We don't need to borrow any more money, because now we have plenty of cash on hand. There are a few more bells and whistles, (some leftybloggers have come up with their own ways of doing it) but that's essentially how it works."
"That's a big F'ing deal." Biden laughed.
"You said, it, Mr. Vice-President," Obama chuckled.
Reid was nonplussed. "What do these coins look like?"
"Well, as I said, they're made of platinum."
"A little larger than a quarter."
"And what's on them?"
"Well, on the back you have a bald eagle, E pluribus unum, that sort of stuff."
"No, no," Reid interjected, "I mean, "whose face is on them?"
"Oh," Giethner smiled almost imperceptibly. "Well, we had some fun with that. One of them has Ronald Reagan on it."
"I'm sure the Tea Partiers will like that!" Reid exclaimed. "Their patron saint solves the debt crisis without raising taxes. And this is Grover Norquist's dream come true. He always wanted Ronnie to displace Alexander Hamilton on the ten dollar bill. This is so much better!"
"The other coin has George W. Bush on it," Geithner continued. "We figured it was kind of fitting, since, after all, he sort of started us down the road to this mess."
"And, of course" Geithner added, "it also says `in God We Trust.'"
"It should say, In God We Trust, all others pay cash," Biden chimed in.
"Yes, well, that would probably undermine the credibility," Geithner responded.
"Ya think?" Reid exclaimed. "Well, this is the most preposterous thing I've ever heard of! And it's all perfectly legal?"
"As far as we can tell," Geithner replied. "I mean, there are multiple ways to interpret the statutes, and it's probably not what Congress had in mind, but this is a pretty straightforward reading."
"But won't this cause inflation?" Reid asked. "After all, you're injecting two trillion dollars into the system."
"Actually, that's not the issue," Geithner explained. "The money is already appropriated, and the government will spend it whether we raise the money from making new cash or issuing new debt. All the coins do is give us authority to spend appropriated funds without borrowing extra money and paying interest on the new debt. (In fact, we might even collect some interest from the Fed). And remember we're in a situation with excess capacity.
"The real problem with this solution is how it looks to the rest of the world. They might start thinking that we are just going to print money recklessly, and that will affect bond markets, the value of the dollar, investor confidence, and so on. That's why it's only as a last resort."
"And we're not going to do it, either," Obama said calmly, "unless we absolutely have to. And we're not going to tell anybody about it either. If we told people that we were even considering this, it would blow up any chance of getting a debt reduction deal, much less a new debt ceiling. The Republicans would just call my bluff and make me use the coins, and then they'd use them to run against me for the next two years."
"It would be a public relations disaster," Biden agreed. "Imagine all the jokes on the Tonight Show."
"That's why it's a top secret fail safe," Obama continued. "We need to have it ready if all else fails, but we don't even know if it would calm the markets. They might think it's just a trick. And one thing it certainly won't do is calm the Republicans. It will just get them even more angry and unwilling to deal. If it leaks out that we are considering something like this you can kiss our negotiations goodbye. That's why we only do it if we reach the deadline and there's no other choice."
"So instead of the constitutional option," Reid said thoughtfully, "it's the jumbo coin option."
"Yes, but it has to stay secret until the last moment," Biden added.
Obama turned to Geithner. "O.K., Tim you said there was a snag. What is it?"
"Well, Mr. President, we made the two coins just like you said. They came out really good. I put them in my pocket and I was going to walk over to the Federal Reserve, but I sat down on my couch to have a cup of coffee and when I got up I reached in my pocket, and I couldn't find them."
"I think I lost them in the sofa cushions. We tried everything, but we just can't find them."
"You lost two trillion dollars in the sofa cushions?" Reid was incredulous.
"Either that or they fell out when I was walking somewhere. Maybe I lost them in the dryer, or in the car. I just don't know." Geithner looked crestfallen.
Reid rolled his eyes.
Obama was impassive. "Don't worry about it Tim. Just make two more of the same. And this time, have the Secret Service convey them over to the Fed. They're part of Treasury, too."
"Sure thing, Mr. President," Geithner said. "But what happens if somebody finds the ones we misplaced?"
"Oh don't worry about that," Obama smiled. "If somebody finds a one trillion dollar coin with George W. Bush's picture on it, they'll know its a joke."