We got bills, y’all.
These bills are already accumulated, due to acts of Congress and of war. But, as has been endlessly dissected and discussed over the past several decades, our nation’s obligations exceed its income—and this has been the case for some time.
The nation pays these bills with the credit card, as it were, by issuing Treasury bonds. By law, there is a ceiling to how much debt the nation can hold, known as the “debt limit.” For the fourth time during the Obama administration, we are approaching that ceiling.
And, once again, the issue is being used by opponents of the President in their ceaseless quest to damage him politically.
They cast it under the terms of “Obama’s spending,” as if Congress had nothing to do with the equation. As if the limit hadn’t been raised seven times under Bush and 18 times under Reagan. Trying to appear reasonable, they demand (unspecified) spending cuts to offset any increase in the debt limit.
A useful analogy is to think of government spending like a household power bill. In this case, the bill is too high to pay outright, so we have to use the credit card (a financial survival technique used by millions every month). While it would be prudent after such an event to make special effort to turn off lights and perhaps keep the heater turned down a few notches, the more proper analogy for the Republican demands is to cut power to the kitchen stove or washing machine.
Simply demanding spending cuts, because “debt” always equals “bad,” is simple-minded policy making that has no place in the modern day global economy.
It’s not that we should borrow endlessly with no worry to the future, but the Treasury bonds under discussion are issued at such a low interest rate that when inflation is taken into account, investors essentially end up paying the government to hold their money for a while.
And spending cuts—“fiscal consolidation” they call it—would benefit no one, especially in the midst of an economy that hasn’t fully recovered from when Wall Street drove a car through the living room wall.
For evidence of this, look no further than Europe, recently consumed by its own wave of austerity measures in the face of the recent recession. The pro-austerity crowd was adamant that spending cuts would lead to economic growth, but their predictions were mistaken in every case, including that of Spain and Italy—notable because if either of those nations’ economies go the way of Greece it could blow a fatal hole in the eurozone’s hull.
Going back to the power bill analogy, sometimes the only way to contend with higher bills is to make more money. The government can either drastically raise taxes, or attempt to boost the economy through spending. A huge, across-the-board tax increase is not ideal, as it would take money out of consumers’ wallets, reducing spending and economic activity.
Though it should be mentioned here that all available evidence indicates that taxing the wealthy and large corporations at a much higher rate than exists under the current structure would hardly inhibit economic growth. This is because these individuals and companies often sit on their cash reserves or invest overseas rather than redirect their money into the American economy, whereas smaller businesses and people with more down-to-earth incomes nearly always direct money saved on their tax bill back into the economy.
So, the federal government has the ability to boost the economy through spending, and the structure of Treasury bond debt means that money can be borrowed responsibly. In the mind of your humble columnist, the decision pretty much makes itself.
But the current political realities mean that significant economic stimulus on the part of the federal government is unlikely to be forthcoming anytime soon. So if they’re not going to help make things better through stimulus, one can at least hope they won’t make things worse through spending cuts, which seems to be an opinion shared by the Obama administration and Congressional Democrats, hence their determination not to negotiate over the debt limit.
And thus, the idea of a trillion-dollar platinum coin enters the discussion. The idea is based on a quirk of law that allows the U.S. Mint to issue platinum coins in any denomination—not, as is the common misconception, a coin that contains a trillion dollars worth of platinum (a quarter does not contain 25 cents worth of metal, for example).
If the coin is then put in the Treasury’s account, it instantly reduces the national debt by one trillion dollars, taking the debt limit problem off the table for the time being. And the risk of inflation is negligible, as the coin won’t actually be in circulation
While this bit of economic trickery is admittedly a ridiculous solution, the alternative is to either give in to Republican demands for spending cuts and see the economy slide back into recession, or default on the nation’s obligations. It would be impossible to fully predict the economic fallout from that eventuality, but one can assume “pretty bad” only begins to cover it.
Given the choices, the ridiculous starts to appear quite rational.
