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Keep the Change: Why Obama Has No Use for Platinum Coins

The platinum coin has a future as a collector’s item but not, it would seem, as a way to avoid the debt ceiling.

The Obama Administration announced late Saturday that it will not be minting a trillion dollar coin and depositing it in the Federal Reserve, thereby allowing the government to spend money even if Congress refuses to increase government's borrowing authority. That's potentially a big deal. Without the ability to borrow or spend, the government wouldn't be pay its bills. And, as you may have heard, the government has a lot of bills to pay—to Social Security recipients, for example, and to vendors who sell products to the government. The government also owes interest payments to the holders of U.S. bonds. Defaulting on those payments could, according to many economists, be catastrophic.

Obama’s decision, first reported by Ezra Klein in the Washington Post, is not surprising. Obama did not avail himself of the coin option in 2011, the first time Republicans used the once-routine debt ceiling increase to demand cuts in the federal budget. Similarly, the administration has ruled out borrowing money on its own authority, by drawing on the 14th Amendment for justification. An array of legal scholars has indicated that one, if not both, of the options would be constitutional. But Obama has never shown even the slighest enthusiasm for these maneuvers. 

The interesting question is why. By refusing to increase the debt ceiling, the Republican Congress is practicing a form of economic extortion. The coin, like the 14th Amendment, seemed to give the administration a chance to stop that extortion from working. Just this week, Senate Democratic leaders issued a letter, made public by Greg Sargent in the Post, practically begging Obama to invoke this sort of authority. With Saturday's announcement, Obama basically said "no thanks." Is this yet another one of those concessions that congressional Democrats and other administration allies will come to rue? 

Perhaps. But the White House doesn't think it's backing down. Administration officials believe they are standing firm—that the coin option, if anything, was becoming a distraction. "There are no magic coins," one senior official told the Huffington Post. "There is no way to get out of this. We feel fine about the politics of it. We think we are in a stronger position if Republicans realize there is no out."

That assessment may be correct. Polls suggest that Republicans will take most of the blame for a prolonged showdown—and any economic consequences it brings. History implies the same. Approval ratings for congressional Republicans fell after the summer of 2011. Republicans had reason to risk the political backlash back then, because they knew that Obama, already facing a tough reelection battle, would feel it too. This time around, the calculus has to be different. House Republicans still have to run for reelection in two years. Obama has to run for reelection…never.

Republican congressional leaders seem to recognize this, even if some of their members do not. For the last week or two, they have been hinting they’re looking for ways to avoid another debt ceiling fight. During an interview with the Wall Street Journal, House Speaker John Boehner talked about the debt ceiling as “one point of leverage” but specified that it was “not the ultimate leverage.” A little over a week ago, on the Sunday shows, Senate Minority Leader Mitch McConnell dodged repeated questions about the debt ceiling. Meanwhile, Republicans are under coming under pressure from supporters in the business community, who worry about the economic repercussions of hitting the debt ceiling.

The platinum coin idea had recently gained a lot of support from some pretty influential writers and thinkers, among them Paul Krugman and  Josh Barro. But as the notion gained credibility, it also became a media obsession. Was the idea a faithful reading of the law? How would Republicans react? Whose face would go on the coin? Serious practical questions also loomed—in particular, would the Federal Reserve even accept the deposit? (The White House cited this issue explicitly in its announcement on Saturday.)

Time spent answering those questions was time not spent exploring what default might mean for Social Security beneficiaries or how default might ripple through the economy. You can safely assume West Wing officials worried that a protracted debate about the coin's propriety was going to make their job more difficult, not less, by interfering with their ability to portray the debate in simple, straightforward terms. 

Josh Marshall captured this thinking well in a recent post:

One of the big problems with the debt-ceiling drama is that the vast majority of people don’t understand what’s being discussed. You hear relatively serious people on the news acting as though it’s Obama asking to spend more money or even unlimited money. So you have misunderstandings about what it means, compounded by tendentious misrepresentations and then simple inattention. But, as we’re already seeing on the standard misinformation sites, the second you start talking about the President minting a special trillion dollar quarter, people pop up and say, What the F#*% are you talking about?
In other words, the Platinum coin has the additional magic of making it look like the President is the one doing something reckless and totally crazy rather than Congressional Republicans who are the ones really doing it.

But having foresworn the coin option, the administration puts even more pressure on itself to prevail in a standoff with the Republicans. Obama says he won’t negotiate over the debt ceiling. But, come February, he (or his allies in Congress) will be be negotiating with Republicans over two other fiscal issues, the automatic spending cuts of the “sequester” and the need for a new spending bill to keep the government operating. Republicans are sure to bring up the debt ceiling in these discussions. Treating it as a distinct matter, off-limits for negotiating, will be difficult. 

Choose your analogy—hostage-taking, a game of chicken, whatever. The question remains, will the administration flinch first? The administration says no, but its allies wonder. “Ruling out the coin idea is, by itself, understandable,” one senior Democratic aide said via e-mail, “but the refusal to assert any form of leverage whatsoever is maddening.”

Update: I originally suggested that, by depositing a coin with the Federal Reserve, the government could increase its borrowing authority. That's incorrect. It would actually be increasing its ability to spend, although the effect would be the same.