Who Benefits from the Platinum Coin Argument?

1/07/2013 04:15:00 PM
Mark Thoma has now weighed in to sort-of endorse the argument that Obama should mint the platinum coins to finance spending in the absence of a debt ceiling increase. We have already hit the debt ceiling, and will need new borrowing authority or revenues sometime before March to avoid defaulting on payments.

I've made a couple arguments on this, basically saying that this isn't a matter of choice, but merely a matter of the law. As it is currently formulated, the law says that in the absence of a debt ceiling increase, the Treasury has exactly two options: 1) it can raise revenues by minting platinum coins (raising revenue is, after all the whole intention of the provision allowing the treasury to mint platinum coins) or 2) continue to issue unguaranteed bonds under the promise that they will be repurchased at face value as soon as the debt ceiling is increased (the option I originally wrote here and Krugman has since argued here).

That is what the law says that the treasury must do. But does that actually benefit the democrats at all?

I say no. Both of these options still require that the debt ceiling be increased eventually, just not right away. Thus, all they do is make it easier for the republicans to delay and block an increase a deb ceiling. And frankly, I don't care a whole lot whether the government defaults now or a year or two from now. So, maybe Obama is right to refuse to acknowledge any of these legal prescriptions. They don't fundamentally improve his bargaining position because the status quo lets him threaten the GOP with blame for causing, or potentially causing global economic catastrophe. The more it looks like Obama is helpless in this whole debate, the more blame falls on republicans and the fewer seats they win in 2014.

So, yes, the law mandates that Geithner must use the platinum option, or else issue unguaranteed debt. But maybe Obama and Geithner are right not to recognize this until it actually happens.