I’ve begun to think about trillion dollar platinum coins again. In particular, I’ve been wondering if President Obama is thinking about them. This is the idea that rather than raise the Debt Ceiling, the government can just mint platinum coins of arbitrary value. It is just an accounting trick, but then so is the Debt Ceiling. Basically, it is either the platinum coin (or a similar device to ignore the Debt Ceiling) or the government defaults on its debt, which will cause a crisis and hopefully that would cause the Republicans to finally raise or even repeal the Debt Ceiling.
At this point, I don’t have much confidence in the Republican Party. Too much of the party just believes that through Pure Force of Will they will be able to get what they want. By this thinking, any complaints that reaching the Debt Ceiling will be bad are just negotiating tactics of the Democratic Party. And many of those who do understand the danger think it is a good thing. One of the main issues with hitting the Debt Ceiling is that it will greatly increase the borrowing costs of the United States government. What does that matter to Republicans who want to cut spending for the sake of cutting spending? I doubt it occurs to them that doing such a thing would pretty much require raising taxes—but again, that’s where the Pure Force of Will comes in.
Yesterday, Peter Schroeder at The Hill reported, House GOP Says it Will Raise Debt Ceiling by Mid-October. That’s a deceptive title. All the article says is that Eric Cantor has sent a memo to GOP lawmakers saying that the House will vote to raise the Debt Ceiling but only if they get “fiscal reforms and pro-growth policies,” which is defined as balancing the federal budget in 10 years.
There are a few things to bear in mind about balancing the budget in 10 years. First, it is a stupid idea. There is no reason to balance the budget ever. As long as the debt level as a fraction of GDP is going down, all is well. That’s how we reduced the debt year after year until Reagan got into power. Second, cutting spending during an economic downturn like the one we are in is catastrophic. Can you say, “Bad jobs report“? Third, the Republicans are big on coming up with grand announcements about cutting the budget, but they never, never, never give specifics. When it comes to actual spending cuts, they can’t agree on anything. Here is the proposed 2013 discretionary spending:
See the problem? This takes me back to my childhood when it seemed that every politician everywhere was going to fix all of our funding problems by eliminating “waste, fraud, and abuse.” We still hear it today. The problem is that most government programs are really quite efficient. It turns out that “waste, fraud, and abuse” only gets you about 2% if you are lucky. Then you have to start hurting actual people—most of the time, rich people who will not only tell you but make you feel it during your next election.
So the question is whether Obama is going to do the right thing and use some loophole or technicality to avoid government default. The other option is to allow us to hit the Debt Ceiling and thus do grievous harm to the economy and also effectively destroy the Republican Party. At this point I’d love to see the Republican Party go away. As I’ve noted before, the Democratic Party really needs to be broken up into two parties: conservative and liberal. The United States is not served well by a revolutionary party. But I think that would not be sufficient consolation for the terrible effects on our economy. So I hope that Obama goes with the platinum coin. Or the Republicans may just kick the can down the road a few months again. And again. And again. But the problem with that is that they will eventually screw up. Republicans are not particularly good at governing.