Politics
After the failure to pass the Boehner Plan in the House last night, the debt ceiling negotiations have become a hall of mirrors - and that is just among the House Republicans. You have the Boehner Plan's specified cuts that, if enacted, would do little improve our fiscal situation. You have the allegedly principled House conservatives who think they are more fiscally responsible than Thomas Sowell and who seem willing to produce an immediate government funding crisis in order to try to get the Senate and the President to agree to spending cuts that do not, at present, have sufficient public support. But who needs funds for ongoing military operations or the border patrol anyway?
There is just a lot of confusion. Means and ends are all messed up. I saw House conservative Trey Gowdy argue that "The seventy-fifth time we raise the debt ceiling should be the last time we raise the debt ceiling." Well, that is unlikely to happen unless the debt ceiling is repealed altogether or raised some much larger amount than anyone is presently suggesting. Gowdy himself voted for the Ryan budget. That budget would add 1.388 trillion dollars to the national debt this year and 995 billion next year. Under the Ryan budget, the federal debt held by the public would rise from just under 10 trillion dollars now to 16 trillion dollars by 2021.
You have two alternatives:
1. Trey Gowdy makes a practice of demagogy
2. Trey Gowdy (an attorney) knows nothing of public finance, and is unteachable on the subject.
The problem in 2 is so widespread that it is hard to say.
It seems entirely plausible to me that congress is sort of hanging back to see what sort of loopholes Treasury uses to get around this problem.
"However, there's a statutory limit to the amount of paper currency that can be in circulation at any one time.
Ironically, there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds."
According to Jack m. Balkin Con Law prof at Yale.
Actually while they are at it they should go ahead and mint 10 of them in case Congress decides to close the loophole....that would put $10 Trillion in an account at the Fed.
Since the debt ceiling is only reached by selling t-bills, this money creation would not count as debt. Potentially if this is too inflationary the Fed could run QE-2 in reverse soaking up dollars with all the bonds it has bought up.
Notice that if we did have a $10 Trillion dollar account at the Fed, the Ryan Budget would not add to the deficit, because we wouldn't need to sell t-bills to make it work, in fact we could cut taxes.
Getting around the debt ceilling by coining $1 trillion dollar platinum coins, a theoretical possibility?
No one in congress is really thinking big, but for someone like me who is not a deficit hawk right now, there is only some wisdom to the debt ceilling limit to our monetary sovereignty, and I am not sure how much.
I think we have to realize that 1971 really did change everything.