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OPINION: Government Could Mint TWO $1 Trillion Coins To Bypass Debt Ceiling

By: Jack Balkin For CNN
By: Jack Balkin For CNN

Some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.

Very soon, Congress will raise the debt ceiling. If it does not, it would be the greatest unforced error in American history, a self-inflicted wound that is as disastrous as it was avoidable.

Suppose, however, that the tea party gets its way, and the debt ceiling is not increased. What are President Barack Obama's options?

We are having a debt-ceiling crisis because Congress has given the president contradictory commands; it has ordered the president to spend money, and it has forbidden him to borrow enough money to obey its orders.

Are there other ways for the president to raise money besides borrowing?

Sovereign governments such as the United States can print new money. However, there's a statutory limit to the amount of paper currency that can be in circulation at any one time.

Ironically, there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.

The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government's checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days. And there are probably other ways that the Fed could achieve a similar result, by analogy to its actions during the 2008 financial crisis, when it made huge loans and purchases to bail out the financial sector.

The "jumbo coin" and "exploding option" strategies work because modern central banks don't have to print bills or float debt to create new money; they just add money to their customers' checking accounts.

The government has not discussed either option publicly. There are three reasons for this. First, there may be other legal obstacles to using these options that we don't know about. Second, because these devices could be used over and over again, they might scare investors and be politically unacceptable. Third, the president's political strategy has been to obtain a congressional deal lowering the deficit, and these solutions would take all the pressure off Congress.

However, that calculation could change if the president believes that Congress is simply unable to pass anything, a conclusion he has not yet reached.

Assume that the platinum coin and exploding option strategies are not available. What else can the president do?

Like Congress, the president is bound by Section 4 of the 14th Amendment, which states that "(t)he validity of the public debt of the United States, authorized by law . . . shall not be questioned." Section 4 was passed after the Civil War because the framers worried that former Southern rebels returning to Congress would hold the federal debt hostage to extract political concessions on Reconstruction. Section 5 gives Congress the power to enforce the 14th Amendment's provisions. This does not mean, however, that these provisions do not apply to the president; otherwise, he could violate the 14th Amendment at will.

Section 4 requires the president not to put the validity of the public debt into question. If the debt ceiling is not raised in time, there will not be enough incoming revenues to pay for all of the government's bills as they come due. Therefore he has a constitutional obligation to prioritize incoming revenues to pay the public debt: interest on government bonds and any other "vested" obligations.

What falls into the latter category is not entirely clear, but a large number of other government obligations -- and certainly payments for future services -- would not count and would have to be sacrificed. This might include, for example, Social Security payments.

To be sure, the president could keep paying Social Security if he could keep the total amount of debt constant by redeeming bonds in the Social Security trust fund for cash and immediately selling new bonds to replace them. But the money coming in may not be able to keep pace with the money going out. Even if he tries his best, the president may not be able to pay every Social Security check in full on time.

If the president stopped paying parts of Social Security or other government programs that the public relies on, we would have a partial government shutdown. This would quickly put enormous pressure on Congress to raise the debt ceiling to make it possible to resume normal government operations.

Thus, even if Social Security and other social safety net programs are not part of "the public debt," under Section 4, failure to pay them promptly and in full will probably lead to a political solution to the debt crisis within a week or so. The closest precedent is the 1995 government shutdown precipitated by the Republican-controlled Congress' battle with President Bill Clinton.

Assume, however, that even a prolonged government shutdown does not move Congress to act. Eventually paying only interest and vested obligations will prove unsustainable -- first because tax revenues will decrease as the economy sours, and second, because holders of government debt will conclude that a government that cannot act in a crisis is not trustworthy.

If the president reasonably believes that the public debt will be put in question for either reason, Section 4 comes into play once again. His predicament is caused by the combination of statutes that authorize and limit what he can do: He must pay appropriated monies, but he may not print new currency and he may not float new debt. If this combination of contradictory commands would cause him to violate Section 4, then he has a constitutional duty to treat at least one of the laws as unconstitutional as applied to the current circumstances.

This would be like a statute that ordered the president to hire 50 new employees provided that none of them is a woman. The second requirement violates the Constitution, so the president can hire the 50 employees and ignore the discriminatory provision.

Here the president would argue that existing appropriations plus the debt ceiling create an unconstitutional combination of commands. Therefore he chooses to obey the appropriations bill -- which was passed later in time anyway -- and ignores the debt ceiling. He orders the secretary of the Treasury to issue new debt sufficient to pay the government's bills as they come due.

The big test would be whether the markets treat these new bonds just like older bonds. If they do, or if they demand only a slightly higher interest rate, the president will have avoided economic Armageddon and saved the country's economy -- and the world's. The president and Congress can then move on to the real issue: fighting about future appropriations and revenues.

At this point, the president should ask Congress to ratify his actions by raising the debt ceiling. If they do not, he can continue the process until they do. His actions might set a precedent: Knowing that the president will invoke Section 4, congressional threats of using the debt ceiling to extract political concessions will become a defunct strategy in the future.

In fact, this was one reason why Section 4 was put into the Constitution in the first place.

An angry Congress may respond by impeaching the president. However, if the president's actions end the government shutdown, stabilize the markets and prevent an economic catastrophe, this reduces the chances that he will be impeached by the House. (After all, he saved the country.) Perhaps more important, the chances that he will be convicted by a two-thirds vote of the Senate, which has a Democratic majority, are virtually zero.

The public may regard an impeachment trial as a waste of time, since the ultimate result is clear. In addition, the president will point to the shutdown and the impeachment when he runs against his political opponents in the 2012 election, arguing that they did nothing to save the country from calamity while he has risked impeachment to protect the republic.

The final possibility is that members of Congress will sue the president for ignoring the debt ceiling. Under existing Supreme Court precedents, groups of individual congressmen would not probably have standing to sue. It is possible that a contrived suit could be created by bond holders, but courts will probably see through it. Moreover, even if the bond holders have standing, the courts will likely treat the constitutional issues as nonjusticiable under the "political question" doctrine, as they do in the case of war powers.

In fact, the struggle between the president and Congress is similar to recent disputes over the president's power to use military force to protect national interests or in emergency situations. If the courts won't intervene in the Libya affair, they probably won't intervene here.

It is still unlikely that things will get this far. Our Constitution, however, was designed to deal with extreme situations when ordinary politics fails. Let us hope that our institutions do not fail us now.

The opinions expressed in this commentary are solely those of Jack M. Balkin.

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