Jack Lew: Avoiding Default Is Your Responsibility Too

By Joe Firestone

With the end of the Summer break, now comes the return of the debt limit dance. From Treasury Secretary Jacob Lew’s letter to John Boehner:

“Congress should act as soon as possible to protect America’s good credit by extending normal borrowing authority well before any risk of default becomes imminent.

“Based on our latest estimates extraordinary measures are projected to be exhausted in the middle of October. At that point, the United States will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day, The cash balance at that time is currently forecasted to be approximately $50 billion.

“. . . A cash balance of approximately $50 Billion would be insufficient to cover net expenditures for an extended period of time. And, on certain days, net expenditures could exceed such a cash balance.

“. . . Protecting the full faith and credit of the United States is the responsibility of Congress because only Congress can extend the nation’s borrowing authority . . .“

OK. So, only Congress can extend the nation’s borrowing authority. But it doesn’t follow from that fact that protecting the full faith and credit of the United States is solely the responsibility of Congress.

The 14th Amendment, Section 4 of the US Constitution says in part:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. . .

As have all members of Congress, both Treasury Secretary Lew and the President of the United States have sworn to uphold the Constitution, and this means, among other things, that the duty of each one of these officeholders is to see to it that they do all they can do to prevent the validity of the public debt from being questioned.

As we approach the time when the debt limit, and the lack of agreement between the two parties in Congress, will force the Government to miss payments, Congress does have an obligation to raise the debt limit or remove it entirely. But, Treasury Secretary Lew and the President need to acknowledge that there are things they can do too to avoid a default on the public debt, apart from either reminding Congresspeople of their responsibility, or giving into Republican demands.

One method of getting around the debt limit that Jack Lew and the President have is Platinum Coin Seigniorage (PCS). The Federal Reserve Chairman and then Treasury Secretary Timothy Geithner took that option “off the table” in January of 2013, in the wake of a significant buildup of sentiment favoring its use. But off the table or not, that option is legal, and the Fed Chair’s opposition to using it isn’t controlling, since the Secretary can overrule the Fed Secretary on money matters they disagree upon, and force the Fed Chair to either get the face value of a Platinum coin deposited in the US. Mint’s Public Enterprise Fund (PEF) account credited, or resign.

There are any number of PCS options the President can use to get around the debt limit by generating coin seigniorage profits. I’ve outlined many of them here. Some stop with $1/2 Trillion coins, some go over $1 Trillion up to $5 Trillion, and still others envision very high face value coins ranging up to $60 Trillion and up.

For getting around the debt ceiling, coins with face-values up to $5 Trillion will certainly remove the need to issue further debt subject to the limit and break the ceiling. However, minting a platinum coin with a face-value of say, $60 Trillion is also a political game-changer, because it results in filling the Mint’s PEF account, and eventually the Treasury General Account with enough in credits to make it obvious to the most concrete thinker that the Government has the capacity to pay all the debt subject to the limit, issue no more such debt if it so chooses, and also spend whatever Congress chooses to appropriate in the way of new programs to solve current problems.

So, issuing a $60T coin, removes the issue (excuse) of whether the Government of the United States can afford to pay for employment programs, educational programs, infrastructure, new energy foundations, a Medicare for All program, new R & D programs, or expansion of the social safety net from the political table. Issuing that coin can and would create a new political climate moving American politics much further to the left within the space of a few months. It is what the President ought to do. It is what he would do, if he were really committed to the well-being of most Americans.

Imagine a petition letter written to Jack Lew saying this:

Dear Secretary Lew,

Treasury should act as soon as possible to protect America’s good credit by using Platinum Coin Seigniorage (PCS) well before any risk of default becomes imminent.

Based on your latest estimates, extraordinary measures are projected to be exhausted in the middle of October. At that point, the United States will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day, The cash balance at that time is currently forecasted to be approximately $50 billion.

A cash balance of approximately $50 Billion would be insufficient to cover net expenditures for an extended period of time. And, on certain days, net expenditures could exceed such a cash balance.

Protecting the full faith and credit of the United States is not the sole responsibility of Congress, but your responsibility too, because you, the Treasury Secretary, have the authority under the law to order the US Mint to use PCS to fill the Mint’s PEF account and ultimately the Treasury General Account with enough reserves to make the debt limit a dead letter, by paying down the debt subject to the limit to zero, gradually, as it falls due, and to use additional seigniorage to fund current and future deficit spending appropriated by Congress.

Therefore we, the undersigned call upon you, to stop calling upon Congress to do its duty to prevent default by raising the debt lift, when you can prevent it yourself by using PCS. We further call upon you to do your duty and order the Mint to produce a $60 Trillion Platinum coin and then deposit that coin in the Mint’s Public Enterprise Fund account at the Fed.

That’s it. #mintthe60Tcoin is still the solution to any debt limit problem. It’s been the solution since the debt limit crisis of the Summer of 2011. The things the Administration did then, and later, didn’t solve the debt limit problem. All they did is produce compromises that harmed people and the economy and allowed debt limit witch hunts to come back again, and again to cause more and more harm. It’s time now to drive that stake through the heart of the debt limit vampire. Join me in signing the #mintthe60Tcoin petition.

12 Responses to Jack Lew: Avoiding Default Is Your Responsibility Too

  1. I guess the point of the HVPCS has been hammered home by now. However, since it is a completely new approach to fund government expenditure, however leagl it may be, one can expect it to be taken up only after all the conventional approaches have been exhausted. If the Congress does not push up the debt ceiling, the administration will use HVPCS option.

    • Joe Firestone

      I hope you’re right. But if they used it, then they’d be admitting that Treasury can’t run out of money, and also they’d give more credibility to people like me who want that $60 T coin. If that happened they’d have to stop claiming that Government poverty requires entitlement cuts and they’d have to start talking about jobs programs which people would then notice they can certainly afford.

      So, if they used PCS, they’d have to be prepared to go down a road they haven’t tried to travel at all. I really don’t think they’ll do that unless they’re pushed hard that way. This brings me back to your point that HVPCS has been hammered home. It has been in some circles. But not among the people broadly. Until it is, the austerity memes will still be potent and Obama will not be laughed off the stage when he asks for a Grand Bargain.

      • I don’t think they can be pushed along the way of HVPCS precisely because it is unconventional and Congress has never rejected spending requests based on the possibility of triggering high inflation (which is what should guide government spending decisions when the artificially constructed “money availability” constraint is lifted). We will be entering completely new territory and few are equipped to charter the course.

        But if the administration is left with no other option, they will go for it. There exists another unconventional option, of issuing IOU letters (not intended as payment) which banks may treat as assets (effectively making them payment instruments) and credit the amount (or a discounted value) to the demand deposit accounts, effectively introducing a new currency for government payments. What is not likely is the government defaulting on payments.

        Yes, the $60 trillion coin is definitely possible, but not likely. It is not as if the US treasury cannot acquire the platinum necessary to mint the appropriate coins in future. Once the administration establishes that it can raise the funds necessary to meet all Congressionally approved expenditures without increasing debt and without recourse to any new laws, the game would already have changed and Congress will no longer have the excuse of not having the money to fund any program or initiative. They have to find different reasons.

  2. I feel as though we need a piece celebrating the irony of a holiday called “Labor Day” in a country where union membership and the power of labor in general has been utterly, systematically, decimated over the past half century, leaving us common folk approximately where we were in the Middle Ages.

    • Joe Firestone

      Good idea. Why do we have Labor day, now? Clearly because once you create a big shopping holiday in America, then woe be unto you if you try to take it away.

  3. Maybe nitpicking here, but this:

    But it doesn’t follow from that fact that protecting the full faith and credit of the United States is the sole responsibility of Congress.

    reads (to me) as Congress having other responsibilities, rather than as others also having that same responsibility. I think “solely the responsibility” is clearer. Context made the intended meaning apparent rather quickly, but still.

  4. charles fasola

    The majority of Americans and especially the vast majority of Business Administration, Economics and Masters graduates of those disciplines are brainwashed into believing that actions such as PCS, which they see as unbridled money printing, will result in inflation and dollar devaluation. The members of congress, bribed by the 0.01%, perpetuate this thinking. By what reasoning to you counter this belief?

  5. Joe Firestone

    Counter-arguments are here, here, and here.

    Briefly stated:

    1) My $60 T coin proposal doesn’t advocate transferring $60 T to the private sector all at once. All it does is say use the $60 T over 15 – 25 years to pay down the debt subject to the limit to zero and to perform future deficit spending over that period. Whether or not that’s “unbridled” depends on the size the deficits Congress chooses to run, not on the amount of reserves sitting unspent in the Treasury General Account (TGA). If Congress decides to run deficits large enough to compensate for demand leakage due domestic savings and trade deficits, but no larger, then there will be no demand-pull inflation, and cost-push inflation has nothing directly to do with Government deficit spending of the type I just proposed.

    2) The inflationary impact of this will be less than rolling over the debt issuing more debt alongside new deficit spending, which is the way we’re intending to do this now, assuming Congress eventually decides that any attempt to pay back the debt by running Federal surpluses will break America (which is what would happen).

  6. Pingback: Joe Firestone: Declaring the Grand Bargain Dead Is Premature « naked capitalism

  7. I was at a meeting with a retired organization and a congressman from my state earlier today to discuss ideas as to how to push back on this attack on the safety net, and lost a great opportunity to talk about your ideas in that my prepared speech was too long for those present. I was cut off before mentioning MMT. I’ve learned to condense my speeches to 3 minutes. I’m not an economist and don’t claim to be, listening and studying what your school of thought has to say is sensible and pragmatic to me. I find, in my limited experience in getting involved in political affairs this reluctance to entertain those ideas you advocate, and I’m not sure why. I’m looking desperately for someone who might be more eloquent in speech and manner to present your school of thought to my circle of influence (union member, politically active) to no avail. So I guess I’m it for now. I have to re-read an earlier post about changing the meme I believe it was Mr Firestone that wrote that.
    Thanks again for all you do.