Wednesday, April 19, 2023

What We've Got Against Trillion-Dollar Platinum Coins

by Neil H. Buchanan and Michael C. Dorf

As we explained in an essay on this blog late last month, we have a new academic paper available in which we consider the source of and limits on the authority of government officials to delay curing constitutional (and other legal) violations upon discovering them. As we noted, the last part of the paper extends the analysis beyond questions that involve winding down (rather than immediately ceasing) ongoing violations to circumstances in which government officials might be obligated to initiate a new course of unconstitutional (or otherwise illegal) action. Our principal example of the latter circumstance concerns the obligations of the president in the period leading up to a potential standoff with a Congress that refuses to raise the debt ceiling--a not-at-all-hypothetical period in which we currently find ourselves living.

Our prior essay teased an upcoming Verdict column on a piece of the analysis that is only tangential to our article: the recurring suggestion that the U.S. might be able to circumvent a debt ceiling crisis by minting one or more platinum coins denominated in the trillions of dollars. We have now written that Verdict column, which puts front and center our explanation why the platinum coin gambit would be unlawful. As we explain in the column, our prior work (both collectively and individually) already offered reasons why the platinum-coin gambit would likely fail, including that it doesn't even circumvent the debt ceiling and that it runs afoul of a core principle of administrative law requiring that an agency interpretation that fills a statutory gap must be reasonable.

In our article and the new Verdict column, we offer two further--and in some sense more fundamental--reasons why the platinum coin ploy fails, both relying on a careful reading of the relevant statutes. 

(1) The Federal Reserve has discretion whether to accept as a deposit even "lawful money," so in order for the platinum coin gambit to succeed, the Fed would have to cooperate, which would embroil it in a highly political battle and thus potentially do long-term damage to Fed independence. For that reason (and others), it is doubtful that the Fed will play along, as long as there is any other option available. And as it happens, our long-preferred response to a debt ceiling impasse would give the Fed the best (among bad) options, as we explain again below.

(2) When one reads the legislation that authorized the minting of platinum coins, it becomes clear that trillion-dollar platinum coins are not in fact "lawful money." Read in context, the statute unmistakably authorizes the minting of "commemorative" platinum coins only, and even then only when offered for sale to the public. This is not a matter of reading legislative history but the legislation itself. And of course this makes sense. The reason there are no denominations listed for platinum coins, unlike for other coins, is that commemorative coins don't circulate. Thus, their nominal face value has nothing to do with their sale price. Simply put, they have some value but they are not money in any sense that allows the Fed to accept them to credit the Treasury's account.

In the balance of today's essay, we want to answer an objection we imagine coming from someone who shares our broader view that congressional Republicans are acting grossly irresponsibly by toying with the debt ceiling. The objection goes more or less like this: Why do you guys (Buchanan and Dorf) want to undercut the availability of the platinum coin option? Even if it isn't your favored approach, shouldn't you support it as a backup? Any port in a storm, right?


As an initial matter, the question (which, admittedly, we are imagining, but we have heard real versions of it), assumes that we are engaged in a solely political enterprise. However, at least in our scholarship, we are, well, scholars, not advocates. If we had to defend the lawfulness of the platinum coin gambit--perhaps as lawyers working for an administration that wanted to use it--we surely could come up with something to say in response to what we regard as decisive arguments against the coin's legality.  Whatever we might come up with, however, would be unpersuasive because the statutory language, read in context--which again, doesn't require parsing legislative history and is completely consistent with textualism, purposivism, and intentionalism--simply does not allow the government to mint trillion-dollar platinum coins to deposit with the Treasury.

Okay, our imaginary critic continues, so you shouldn't write works of scholarship that say the coin gambit is lawful, but you could simply stay silent about it, rather than making an argument that will take a potentially useful tactic off the table.

Yet that objection assumes that if we hadn't identified the legal problem with the coin approach, no one would have. We're not so clever, nor is the argument against the coin's legality so subtle, that no one else would have noticed it if the ploy were ever attempted. All it really took for us to discover the decisive legal objection was to read the relevant texts carefully, which surely other lawyers will also do if the issue becomes concrete.

Meanwhile, given the timing of any likely crisis, it's not true that platinum coins can be minted as a backup plan if our "least unconstitutional option" (LUO) of issuing bonds in excess of the debt ceiling somehow fails. Minting and attempting to deposit trillion dollar coins with the Fed is an approach that would compete with and thus could crowd out LUO. Why? Because it's pretty obvious that Speaker McCarthy (driven by the crazies in his caucus if not by his own druthers) will play chicken with President Biden and Senate Majority Leader Schumer. The best that one can reasonably hope for in this game is that they strike a deal to raise the debt ceiling and to cut some amount of spending for the next budget, doing so in a way that allows McCarthy to say that the spending cuts were payment for GOP agreement to the debt ceiling deal and Biden to say that they were the result of unrelated negotiations.

Any such deal-that's-also-not-a-deal is likely to come, if at all, at most days and probably only hours before the debt ceiling becomes operative. But up until the very last moment when negotiations fail, Biden will not announce his contingency plans for fear of undercutting his bargaining position. We think this is a mistake--that he should announce now that he'll simply pursue LUO if the Republicans don't budge, because that would deprive Republicans of their leverage. However, it's pretty obvious that the Biden administration is taking the position that there is no Plan B.

The dynamics of the negotiations likely to occur as the drop-dead date approaches will leave very little time for the announcement of an actual Plan B until after the deadline has passed. At that point, the administration should follow LUO and simply continue to issue bonds in the same way that it has on every previous day. What it probably will do is announce some complex (and in our view more illegal and more unconstitutional) prioritization scheme for who gets payments legally owed them on time and in full and who does not. This approach rests on the deeply flawed conventional wisdom that treats a debt ceiling impasse as equivalent to a government shutdown when Congress fails to pass a budget. We won't reiterate here all that's wrong with the "cut spending" approach. We will say that if the platinum coin were to come in, it would be at the same point--instead of LUO or spending "cuts."

Legal challenges to whatever approach the Biden administration takes will surely be brought almost immediately. Even if a court somewhere (presumably Texas) quickly acts to issue injunctions, that action will not be nearly as swift as the economic fallout. A selloff of government bonds could quickly destabilize the entire financial system. The run on Silicon Valley Bank was caused by its over-investment in low-interest rate US bonds, which lost value when interest rates rose. If all US bonds lose value--as they very likely would in reaction to a debt-ceiling crisis that calls into question the full faith and credit of the United States as a borrower--then all major financial institutions that have substantial bond holdings and counter-parties to such institutions suddenly would have less money to pay nervous depositors. The contagion would spread to the global financial system and then to the real economy.

Something like what we've just described is likely to occur regardless of what Plan B the Biden administration pursues, but the outlandish and cartoonish nature of the platinum coin approach--and the Fed's participation in it--would make matters worse. It would also undercut the Fed's broader credibility and thus its ability to act, as it did in the 2008 crisis and its aftermath, to stabilize all of the systemically connected financial actors.

Put differently, the administration will have only one shot at mitigating the damage if Congress doesn't raise the debt ceiling before the witching hour. Using that one shot on the platinum coin gambit when it would be so much simpler and more credible to issue debt in the usual course would be profoundly unwise.

Bottom Line: Our conclusion that trillion-dollar platinum coins are unlawful does not depend on our policy druthers in the face of a debt ceiling crisis, but it does align with those druthers.