Funny Money

Ep. 2 Pt. 2 - Debt Ceiling & Mint The Coin with Rohan Grey

• Funny Money • Season 1 • Episode 2

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Funny Money is a show about the economy, how it works, and how it can work better. In Part 2 of this 3-part episode, Ka and Andrés are joined by Prof. Rohan Grey to discuss the debt ceiling: its history, how we got to the current crisis, and how #MintTheCoin presents a solution that shows just how silly the whole idea is of our government running out of money.

Guest Bio: Rohan Grey is an assistant professor at Willamette University College of Law, where his research focuses on the legal design and regulation of money and finance, including digital fiat currency, as well as broader issues of law and political economy. He is the president of the Modern Money Network, a director of Public Money Action. Rohan has advised multiple members of The Squad in Congress on bills including Rep. Rashida Tlaib’s ABC and STABLE Acts, as well as Rep. Ayanna Pressley’s Public Banking Act of 2020.  You may have seen Rohan on Jon Stewart’s show The Problem with Funny Money’s first guest Stephanie Kelton.

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Hosts: Jessica "Ka" Burbank & Andrés Bernal
Producer: Mike Lewis
Sound Mixed By: Curtis Clogston

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So I think it's a really beautiful set up for all of this debt ceiling nonsense that we're hearing about. Right. In many ways, the debt ceiling itself, operationally, legally, is kind of, at least the way I see it, this inheritor of this gold standard vision and operationalization into the U.S. government. Tell us a bit about the history of the debt ceiling, where it comes from and how it's kind of gotten us to where we are right now. Yeah, I think to your point, the way that the debt ceiling is politically weaponized today is in service of austerity and in service of anti-deficit politics. The idea being we can't spend more money. They always say more than we take in as though the problem is the deficit. But if you propose raising taxes to cover it, they won't like that either. So what they really mean is they just don't like public spending. They just don't want to spend on public schools for Black kids. They don't want to spend on public health care for poor people. They don't want to spend on roads in towns that they don't live in. That's what they actually mean. But they frame it as concerns about deficits because the word deficit sounds bad, right? Most people don't want to have a deficit of something in their life. And it's framed as concern around debt, because the assumption is if you run a deficit, you can't fund the difference between, you know, X and Y, how much you're spending and how much you're taking in taxes. With new money, you have to fund it with borrowing because new money has to be inflationary. That's the idea behind why the debt ceiling has to exist. We have to keep a curb on how much debt we're issuing because like a household, you can only borrow so much. Right. I guess we have to run a little bit of a deficit begrudgingly, but we should stop doing that. But while we're doing it, I guess we have to borrow the extra money. But that's also not sustainable. So this is the narrative. Right. But if you actually look at the history, the debt ceiling, it's the opposite. It's the absolute opposite. The history of the debt ceiling is that for most of the early republic in the United States, the spending that Congress would pass was authorized on an individual basis. It wasn't one big omnibus budget every year. It was individual spending bills. This amount for the Post Office, this amount for the Customs House, this amount for the military, this amount for, you know, whoever else the attorney general. And every time they authorized the spending, they would also authorize how you financed that spending. Sometimes it would be individual taxes. Sometimes it would be a custom or a duty. Right. Almost like a sales tax or an import export tax. For a lot of the early republic, it was mostly imports and exports. And it wasn't taxing people inside America. It was taxing people at the borders and goods and services, smuggling, that kind of stuff. This is the Boston Tea Party kind of thing. And sometimes it was about issuing coins. So you would earn seigniorage revenues. So you would issue coins worth $1. You take in $1.20 of gold and you would keep the other $0.20 and keep it for the Mint to use for its own basis. But it would also include Treasury securities, public debt, which was already in the early Republic one of the most valuable financial assets to hold. Alexander Hamilton. His big idea, his genius idea that got him almost to the presidency before Aaron Burr did us all a favor and shot that bastard was that we would take all the debts of the states, all the debt to the states from winning the war, and put it all in one and consolidate it and have the federal government take it over. And that public debt became a valuable asset for financial markets around the world to invest in. They were already investing in London's debt. They were already investing in European debt. Now there's a thing called the United States, or at least eventually would be called the United States. It's called the United States debt. And you can invest in it. You can invest in this bright new future called America. And you get a positive interest rate and you get a valuable asset that's backed by all of it, the whole continent, all the enterprise going on and that military to back it up that just beat the British in an unbelievable victory. What the debt ceiling was, was a recognition that as this as society grows, it becomes more complicated. So what is the first big development in the United States capacity? Well, probably 1812. But after that, it's the Civil War. That's when you started to really build a federal government. Right. By the time you get to the early 20th century, it's World War One. The United States goes to war. They're ramping up spending. They ramping up the administrative state. And by the time you get to FDR, we're in a whole new America. Right. You have the formation of the Republic to the Civil War. You have the Civil War to the New Deal, and then you have the New Deal onwards. That New Deal shift was the shift to saying we cannot micro-manage every single piece of spending that the executive branch has to execute rather than say, when we want to spend for the regulators over here, we've got to spend for the military over here. We want to spend the Social Security over here. We'll have 100 different kinds of debt. We are going to consolidate it all and give you one lending amount. It was sort of like if somebody gave you 25 different pots of money to spend on 25 different things and you were kind of going, wait a second, if I run out of this, can I borrow a little bit over here and move it over there? Yes, I'll allow that. Well, can I move a little bit from this one over to this one? Yes, I'll allow that. Can I borrow a little bit from this one and move it over this one? Yes. I’ll allow it. Actually, don't worry about it. Why don't you just put it all in one big pot and let me know if it runs out? All right, fine. So the debt ceiling was originally an attempt to make it easier for the Treasury to spend all the different kinds of spending that Congress had told them to spend rather than have to issue specific debt to specific spending. It was general debt for all the spending. It didn't allow the Treasury to spend whatever it wanted. In fact, the President over the 20th century had their discretion constrained in how much they could spend, but it did allow them greater discretion in what instruments to choose to issue. If you want to issue more 30 year bonds versus ten year bonds, do it. If you want to issue more three month bills versus one year notes, do it. You decide. That was what the debt ceiling was designed for. But like so many laws, once it's in existence, it can be manipulated and used beyond its intent. So the minute there's a number, that number becomes a political football. The debt ceiling is established in its modern form. In 1939 and by the early 50’s, Senator Robert Byrd, who Ted Kennedy said was one of his great friends forgetting that he was part of the Klu Klux Klan in his youth. Senator Robert Byrd, who was already in the Senate in the 50’s and then died in 2010 he held up the budget on the basis of the debt ceiling. And it was the first set of accounting gimmicks that the Treasury had to use to avoid a default, which was that they changed the price of gold certificates. They said these gold certificates used to be worth, you know, $200. Now they’re worth $800. Suddenly we have more money to spend. It was a complete accounting gimmick. But the debt ceiling became this political football where it was really a referendum on the budget itself. It wasn't about how to finance and it wasn't about the choice of 30 year bonds versus ten year bonds or anything like that. It was about whether or not we really should have spent that much. It's like somebody going to a store, letting you buy whatever you want, and then at the end of the month, when the credit card bill comes freaking out. The time to deal with that was when you went to the store, right? The time to do it was when you let everyone buy everything in the checkout line. But they did that and then later on, they have regrets, right? I got a few too, but I don't blow up the entire U.S. economy over it. And I think that's beautiful, Rohan, you’re a saint among men for that. But I think what you spoke about earlier in regards to trust and the deliverance of public goods is relevant here because, as you put it, it's like a game of chicken, right? It's like, hey, agree to all of these cuts that I have. You know, Senator McCarthy saying this or guess what? I'm going to force us to default, which is not necessary. So can you walk us through what are the mechanics and social costs? There's a cascade of them of default. Yeah, and you're absolutely right, because what actually happens in these moments is the people who are pushing for these debt ceiling showdowns want cuts to Social Security, Medicare, social programs. Right. Things that help poor people, things that help communities of color, medical care for abortion, for trans youth. These are the things that they want to cut. They never want to say, hey, we probably shouldn't have done those tax cuts for the rich. We probably shouldn't have done that corporate handout. We probably shouldn't have done that massive bailout of the financial system. Yeah, the National Endowment for the Arts. I worked with the Endowment for the Arts when I first moved to United States. The budget for the National Endowment for the Arts is about $150 million a year. It's a rounding error. It's like a wing and two wheels of an F 32 fighter jet or whatever. But the Republicans hate it. They hate it that that pittance of public funding for the arts is on the chopping block every year. And this is the kind of stuff that they are using the debt ceiling debate to try to force the Democrats to cut. And nine times out of ten, the Democrats agree to cut. Obama formed the deficit reduction commission. Biden has just announced today that he's going to sit down to the table with the Republicans on this stuff. After holding the line commendably, he's finally starting to to play chicken and to swerve off the road. But to your point, what happens is Congress says spend a certain amount, it says tax a certain amount, and it passes a budget that says those two things, right? X and Y. There's a difference and there's a whole separate thing that happens later in the process where it says you can issue debt up to a certain amount, up to Z. And when we hit that Z, somehow we have to continue to honor those spending commitments. The way that the standard narrative goes is you can't do it. It's an impossible problem. It's like saying we've got no more money left in your wallet, but you have to spend 500 bucks. But your credit card has a limit of 200. Well, you’re shit out of luck. What are you going to do? The way that the mechanics work is that the Treasury has an account called the Treasury General account, through which all major spending of the government goes through. And at the end of every day or the end of every week, depending on what the needs are, the Treasury will sell bonds, sell debt to the markets, and then those funds that it gets from selling it will go into that account and replenish it. So it's not that it actually needs the funds in order to send the checks out. Right. As Stephanie says, the checks go out. It's that at the end of the day, they need to replenish the negative, back up to a positive. And that's not an operational requirement. That's not a technical requirement. It's not like the government would suddenly not be able to spend if it ran a negative overdraft. It's a legal requirement. There used to be a legal authority to run an overdraft. That authority was removed in 1980. And so you have this world where today the expectation is if you run an overdraft during the day, you better get that sorted by the end of the day by issuing more Treasury debt. That's where the problem comes in, because if you cannot issue more debt, you cannot replenish that account, or at least that's the conventional wisdom. The reality is there are in fact, many other ways that that account gets replenished. It's not just taxes. As I said before, there are all sorts of ways the government can force people to pay money. If you're in Ferguson, Missouri, it's not taxes. What is it? Speeding tickets, right? It's impound fees for your car, whatever else. If you are in a port, what is it? Customs duties, Right. If you are a securities trader. Right. It's an FCC fine that you pay. There are all sorts of money that could be going into the general fund. And one of those is what they call seigniorage. And seigniorage is a very boring technical term for a very simple idea, which is when you make money, it's not free because money itself has a materiality. Even a piece of paper costs ink and paper, and some artists to design Harriet Tubman's face eventually. Right. So we have costs to making money, but the costs of making money are also denominated in money. You're paying someone money to make the money.

It's like Xzibit’s Pimp My Ride:

Yo dawg, I heard you like money. So I got some money so you can get some money. with all your money, you know, that kind of thing. But the reality is, most hundred dollar bills cost cents to make. So if you're paying $0.18 to make $100 bill, you are making $99.82 of seigniorage revenue. With a computer, it's even easier. You buy $100 computer. You put an Excel spreadsheet on it. You go to tink, tink, tink, tink. And now you have $1 Trillion dollars. So seigniorage nowadays is basically infinite. In the past, if it was gold, if it was silver, if it was special kinds of paper, it might actually cost a fair bit. But with digital money, it's essentially infinite. And we have seigniorage revenue every year. When the Mint makes coins, on just regular coins that you and I use, it returns hundreds of millions of dollars to the Treasury every year that look identical to taxes. When the Federal Reserve issues paper notes or it issues reserves, digital reserve balances, it returns tens of billions of dollars a year to the Treasury. And again, from the Treasury's point of view, that's exactly the same as if it got more taxes. So this conventional narrative that the only options are borrowing or taxing is false. There are all sorts of ways that you can replenish that account and meet your legal commitment to not run an overdraft. And I just want to hammer again, this is a legal requirement, not a technical requirement. You and I run out of other people's money. The government doesn't run out of its own money. It just has these self-imposed legal constraints. And when we talk about the debt ceiling, even without suspending or raising it, we have another option that is legal that you talk about a lot. You are who I think of when I think of Mint The Coin. So can you tell us what is the coin and how does it work? Yeah. So the basic idea is that there are, as I said a second ago, that we normally think of this is like a three legged stool, but it is in fact a chair. It's got four legs. The three legs that we normally hear of is: Congress says spend a certain amount, tax a certain amount, and only borrow up to a certain amount. But what's missing from that story is the money getting created itself. You have to actually create the money before you can tax it. You have to create the money before you can “borrow it back”. I don't even think of it as borrowing. It's issuing debt instruments and swapping it out. But to the extent that we think of it as borrowing, you have to actually issue it to then be borrowed back. Right. Another way to think of it is if you have money in your checking account and you want to move it to your savings account, the bank will do that. But you actually have to have money in your checking account. Right. You can't say to the bank, Hey, I'd like to just have $200 in my savings account. They'd be like, Yeah, well, you're going to give us something for it so you can buy Treasury debt, but you have to give money up for it, right, cash for it or bank account money. So this is the normal way we think of it as these three. And we missed the fourth one, which is creating money. So we create this impossible dilemma where we need to spend a certain amount, can’t tax more, can't borrow more. But if we add money creation, that dilemma goes away. As long as you can create money, that's the remainder. You write X, Y, Z, M, and the coin is actually an obscure provision of the Coinage Act that was first passed into law in 1997 in a omnibus budget bill as part of a reform of the Coinage Act, under Mint Director Philip Diehl, who was a visionary Mint Director, was very interested in things like digital cash, which I also work on. He was sort of way ahead of his time. He was a Texas businessman who ironically wanted to run the government like a business. He was very entrepreneurial, but he wanted the Mint to be a much bigger agency than it was. He had big ambitions to grow the Mint. He made it budgetarily independent like the Fed is.

And he said:

Trust me, I'll make so much money from the Mint that you will love it. So Republicans loved him even though he was a Democrat because he would earn profits on selling coins. He came up with commemorative coins. He came up with bullion coins that people who liked investing in precious metals would hold these coins for their metal value, and he sold them at a profit. And all that money went back to the Treasury. And so he convinced a Republican named Mike Castle, who at the time was the head of the Subcommittee on Coinage to pass this law. And that law said that the director of the Mint under the Treasury Secretary, can issue platinum coins of whatever denomination they want. Proof coins and bullion coin, bullion coins are held for their metal content. They are just a way of holding metal. Basically, proof coins are shiny coins. They look very, very, very shiny. You might have seen them sometimes if you go to like the vending machine or something, you get a dollar coin that super shiny compared to the others. They're often collector's editions, but they don't have to be. They just mean that there's a nice way of making the coin and they can be any denomination they want as long as it's platinum. Most other coins, you can issue as many coins as you want. There's no debt ceiling, there's no amount of coins

where the Mint says:

Sorry, we're full up, we can't make more coins. But there are caps on the value of the coins. The quarter can only be $0.25, otherwise it wouldn't be a good quarter. It would be very bad for elementary school math. A quarter was worth more than $0.25 and nickels worth $0.05. Right. We don't even use that word in Australia. Dimes with $0.10. We just call them five and ten cent coins. But you Americans have to come up with weird names for everything. So all of these coins have caps, right? They have numbers, even the weird ones that most of us don't know about. Like there's a special coin, the Palladium coin, but it's capped at $25. The platinum coin was unique in that it didn't have a denominational cap. The Mint Director knew that this was a unique event in the history of coinage. It was the first time that we not only had no limit on the number of coins, but also no limit on the face value of the coin. It was not related to the underlying metal content. You could have it more or less whatever you want. And then years later, during the first debt ceiling debate in 2011, Carlos Mucha, an attorney in Georgia who was part, at the time, of an MMT commentariat on Warren Mosler's blog, amongst other blogs like New Economic Perspectives and other blogs around like Brad DeLong’s blog and Naked Capitalism and all these kinds of places. This was in the kind of heyday of the blogosphere when everybody was sort of looking at all these different Econ blogs every day before Google Reader killed the ecosystem, those bastards. And he found this law. He found this nice, kind of amazing hack in the system to say, Hey, that general idea that you have more than just taxing, spending and borrowing, you have money creation. This is the perfect law to make that point. It's the perfect example of that general constitutional power. And he posted about it at the time. And a number of early MMT is like Joe Weisenthal and Stephanie Kelton and Scott Fullwiler went Holy crap, that's really helpful. That's pedagogically very helpful. It makes the point that we've been trying to make of these constraints is self-imposed. It's also operationally really helpful because we're in the middle of this ridiculous debt ceiling debate where President Obama is saying we've run out of money. Well, do you know what makes it really clear that we haven't run out of money,$1 trillion dollars. $1 trillion dollars in something this big. So it was a very clear way of cutting through the narrative at the time. And then journalists like Joe Weisenthal and John Carney and others got into it. Lawyers like Jack Balkin and Laurence Tribe said, Yeah, this looks pretty legal to us. The plain language is pretty unequivocal of this statute. And the basic idea is that the Mint would make the coin, deposit it at the Fed. The Fed would give the Treasury the face value of the coin, just like if you went and put $100 bill into the bank, it just credit your account and then that money is now available in the Treasury's general account to spend just like any other source of seigniorage revenue. Just like if it was a bunch of quarters that were sold to the public or to Walmart. So that idea completely blows up the supposed crisis of the debt. It's no longer a crisis. The debt ceiling says you can't issue any more bonds and the President can say, fine, I'll just do another thing. So does it have to be a physical coin? Because what happens if I steal it? I think Scott Fullwiler would say, Who's going to give you change for $1 trillion dollars, as he said before? But there are people who are worried about having a physical coin. What do you say to them? Yeah, I mean, so first of all, I think once you make the coin and you deposit it, you kind of make the point. If Nicolas Cage needs to steal it to help Hollywood, you know, that's fine. I'm down with a little subsidy for the arts, anyway. And realistically speaking, not only can you not get changed for it, but my other my other point about that is it's pretty hard to claim legitimate title. I think you'd have a pretty strong presumption that you didn't get that legally. You know, it's not like you kind of accidentally found it in your in your laundry or something. But so realistically, if somebody did steal it, what would actually happen is that it would end up in some private collectors item next to, you know, rhino horns and a Picasso painting that should be in a public museum or whatever else. And it would never see the light of day. But also by that point, it doesn't really matter because the whole point isn't that you need the coin to have the value. The whole point is that this is all just an accounting game, which is exactly how the federal budget works right now. Right. Janet Yellen is trying to keep the government spending commitments, say, through what she calls extraordinary measures, which is basically moving numbers around a bunch of arcane accounts to make it seem like there's “more money in the banana stand” right. And what the coin theft would do is just show that the coin was only ever really a physical manifestation of a conceptual point. We don't need the coin. The only reason we need a coin right now is because we haven't made the law better. In general. Speaking of the Constitution, one of the things that has come up into the conversation on this topic is the 14th Amendment. If we can pull that it up, it says Section 4: 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. Rohan, you famously talked about how we shouldn’t invoke this before minting the coin, but rather after mint the coin if there are still issues. Can you talk about that a little bit? Yeah. I mean, as you can see, a large part of the concern for the creation of this was dealing with the insurrection and traitors. So it's weird that we somehow managed to pass a constitutional amendment after January 6th and nobody noticed. I'm joking. I'm joking. It was the Civil War and the Confederates. The point here was that there was concern that the Confederates would take over the government and they would refuse to pay the pensions of Union soldiers, you know, the people who shot their family members for being slavers. And so this amendment was essentially a way of saying when Congress commits to spending, commits to paying certain bills, future Congresses cannot deny that. And there was already longstanding constitutional law going back to the Supreme Court in *1838 with a case called Kendall v. Ex Rel. Stokes Stokes said when the legislature, when Congress, dedicates such sums to be spent, the executive branch has no constitutional authority not to spend them. So basically, if Congress says spend it has the power of the purse, the executive branch can't say, nah, right, can't do that. Nixon tried to say nah in 1970s, because he was playing his Southern strategy of dog whistling racism not very subtly. And so he tried to not spend money that was appropriated to to poor communities of color. And his justification was, there's no money left. I have no choice but to not spend. And Congress threw the book at him and they passed a new law called the Anti Empowerment Act, saying, when we say spend, we mean it. You have to do it. Do what we say. You know, you're our little monkey. Do your job. President Clinton tried to do what was called a line item veto. He said, okay, a budget comes to my desk. I'm going to pick and choose which parts I like and only sign those parts. The Supreme Court said, no, you don't get to do that. When Congress gives you a budget. It's one whole package. You can strike it down if you want, pay the cost, but you don't get to cut out the fat like it’s a nice ribeye steak. You have to either eat the whole thing or nothing. That's how it works. The budget comes to you as one piece of legislation. So the 14th Amendment, which says the validity of the public debt should not be questioned, and that includes Treasury debt as well as any commitment the Congress has incurred. So a social Security recipient or a government employee right now, the government employees union has actually set up a lawsuit saying that the debt ceiling is unconstitutional because it will prevent the government from spending. The reason I think that's a problem now is because it's not true. The coin and other exotic accounting gimmicks like what they call Consols, which are basically forms of debt that have no face value, only interest. So you buy a thing and you buy it for 100 bucks, but it's not worth 100 bucks. It's not going to promise you a hundred bucks back in ten years. It's promising you $1 a year forever, and maybe it'll change it to dollars a year or something. So it has an interest rate, but no face value that it doesn't count under the debt ceiling. Because the debt ceiling only counts. Face value doesn't count. Interest the other way is what they call premium bonds, which is you have something with a very small face value and a very large interest rate. And if you ever play that game, would you rather, one of my favorites is would you rather have one big tooth or a thousand little teeth? But would you rather have a very big face value of a bond with a very low interest rate or a very low face value of a bond with a very big interest rate? And the answer is mathematically, it doesn't matter. They're the same thing, but only one of them counts towards the debt ceiling. So given that you have these options available to coin different kinds of exotic bonds, you can't blame the debt ceiling for you being unable to spend. It's like someone being like, well, I have 25 cars outside my mansion and my Lamborghini is broken down so I can't go to the grocery store. Well get another bloody car then. Stop complaining, right? Oh, no, I can't do it. I can't do it. All right. The debt ceiling is the limit on issuing debt, issuing a specific kind of debt. It is not a limit on spending. And as long as you can spend in other ways, the debt ceiling is not constraining you from fulfilling your spending commitments as the President. If the Supreme Court strikes down all those other options, if it declares the coin unconstitutional, it shouldn't. But if it does, if it declares premium bonds and Consols unconstitutional, which it shouldn't, but if it does, then Biden could say, well, I guess I have to ignore some law. Maybe I ignore the law on the overdraft at the Treasury general account. Maybe I ignore the law against making paper money beyond the $300 Million that the the Greenbacks laws that were still in place since the Civil War allows me to make. The Federal Reserve can make as many paper dollars as it wants. The Treasury can make up to $300 million under existing law, which back in the time the Civil War was a lot of money. But today isn't that much money. So if you try all the options available to you legally and none of them are available, then you could say maybe I'm going to ignore the debt ceiling. But as it stands, Biden hasn't done that. And the big worry from my point of view is that it is very, very dangerous precedent in the era of Trump or post-Trump or pre-Trump. Again, God willing, or God forbid, to ignore laws that you don't like on the basis that you have to ignore them when you have other options available to you. Because Trump might come along and say, Oh, there's a law that says, I have to look after immigrant children, Well, sorry, I can't do that. You say, Yes, you can say, Oh no, I don't have any money in that pot of funds. You say, But there's money in this other part of funds. Oh, can't do it. Sorry. So it's very dangerous to the rule of law that Biden gets to pick and choose which laws he wants to ignore when there are other laws available to allow him to do the thing that he needs to do. So it's like all options have to be exhausted. Exactly, exactly. If the argument is I have no choice, I have no way to continue to spend, then you better actually not have any choices available. Right. What about that button over there? Oh, I don't want to talk about that button over there. Why don't you want to talk about that button over there? Oh, I think it makes me look silly. Really? Yeah, I. Look, I don't think platinum looks good on my skin. You know, I'm really more of a gold person, so I don't want to touch that button. Sorry. That's not your choice. You know, you don't get to ignore available options to violate laws. And so once all of these options are tried out and exhausted and the Supreme Court, you know, knocks it down or, for example, the Fed doesn't accept it. Right. You were famously called unhinged by the National Review. Right. A famous conservative newspaper, media source for suggesting that at only at that point can Biden send troops to the Federal Reserve to make sure that the law is followed. So there were two parts of this. And, of course, you know, any time the National Review hates you, you know you're doing something right. Know me by my enemies, right? But what actually happened was the there was an argument that Janet Yellen herself, Secretary Yellen, has said, which is that she thinks that the Fed wouldn't accept the coin. And the idea is that the Mint, in order to get the funds in the Treasury's account to spend, the Mint has to be able to actually deposit the coin at the Fed, deposited it in a bank account. And the argument is that the Fed doesn't have to accept it. I think that argument is wrong. I've written that up in a law review paper called Administering Money. You can find it online. But first of all, but more importantly, the reality is that the Treasury Secretary Yellen doesn't want to consider the coin because they want the Republicans to fold. They want them to yield. They are playing a game of chicken where both people are speeding 100 miles an hour down a highway towards each other and they want the other one to swerve, right? Somebody says to them, What are you doing? You're going to kill everyone in the back. Oh, don't worry. They have to get off the road, so maybe they should be the ones to do it. But you're going to kill us if you don't get off the road. Well, I can't get off the road. Yes, you can. Well, no, I can't. I don't want to think about that right. So Yellen is in a position where if the coin is available, she cannot say that there is a default looming. But to say that there's a default looming is what creates this urgency for the Republicans to come to the table and negotiate it. There needs to be stakes here. There needs to be hostages for this whole threat to work on either side. So Yellen doesn't actually want the coin to be an option because it diffuses this problem in a way that makes her look silly but doesn't make the Republicans have to concede anything. Right. So politically, she doesn't like it. And the best way to get around that is for someone else to tell her that she can't use it. Now, of course, Janet Yellen was what, before she became treasury secretary? She was the chair of the Fed. Who is the chair of the Fed now? Jerome Powell, who was Yellen's protégé. So when Powell says when Yellen says she thinks that the Fed wouldn't accept the coin, what she's really saying is, I don't want the Fed to accept the coin. I don't want them to accommodate me, because then I get to say, oh, sorry, it's out of my hands. Why is it better for the Fed to be the one to play bad cop? Because the Fed is independent like the Supreme Court. No one can vote the Fed out. So what Yellen is really saying is we don't want to take the coin seriously. And we've called up the Fed nudge, nudge, wink, wink and asked them to throw themselves on that grenade and say, well, we won't accept it. My argument is the Fed doesn't have that authority. Our colleague Nathan Tankus wrote a piece in the Financial Times saying that the Fed actually has to accept the coin because the Fed is the fiscal agent of the Treasury. Their job is to take funds when the Treasury wants to deposit them. It's like if you have a bank account, your bank can't selectively choose not to take your hundred dollar deposit. It may actually be able to in that situation. But in this situation, the law says it can't. So my point was, if the Fed refuse to accept the coin, knowing full well that doing so would cause a default and violate the Constitution, the President is actually obligated under the Constitution to ignore the Fed.

You can't say:

Oh, I can't do it. Oh, the Fed didn't give me permission. It's not the Fed's job to let you violate the Constitution. The Fed doesn't have that authority. So my point was that if Biden is faced with a choice between demanding the Fed accept the coin and violating the Constitution, it's a no brainer. He has to demand the Fed accept the coin. Now, would that actually happen now in a million years? Not in a million years. This is all smoke and mirrors. This is all parlor games to keep this debate focused on the game of chicken with the Republicans. There is no way in hell if Yellen called up Jerome Powell and said, “I'm going to have to do it. I hate it. I'm going to have to mint the coin,” that Powell would refuse to accept it. So I don't actually think that this is about sending troops to the Fed. This is about not taking seriously that concern trolling that maybe the Fed wouldn't accept it. So I called their bluff. Oh, really? The Fed is going to say no? Jerome Powell is going to go against his own mentor and try to force a default? Fine, force him not to then. And then the next response was, well, what if the Supreme Court declares it unconstitutional? And again, it was the same analysis. The Supreme Court does not want to be responsible for causing a default. That would be ludicrous. They would be instantly entangling themselves in the very heart of the congressional-executive branch interplay, which they don't want to do. And those six justices on the Supreme Court, which are busy dismantling the welfare state and hurting trans kids and criminalizing abortion, would suddenly lose all the credibility with bond investors, with mom and pop with every government employee in the country.

So my answer was:

ignore the Supreme Court, do what FDR threatened to do. Do what Lincoln actually did. Just say. Well, that's their decision. And it sounds absolutely crazy in the United States because we have this huge deference to the courts. And I'm a law professor. I deal with this every day. The amount of deference to the courts is just ridiculous here. But in most of the rest of the world, the courts don't have the final say. They have one say, all three branches have their own opinions. There are plenty of countries, very functioning countries, including my own, where the highest court in the land will say something is unconstitutional and parliament or the prime minister will say, All right, thank you for that. Your opinion is duly noted and that will be it. So ignoring the Supreme Court here is about saying that there are multiple competing theories of constitutionality, and the 14th Amendment does not say“the validity of the public debt shall not be questioned unless SCOTUS says so, in which case it's fine.” It doesn't say “the validity of the public debt shall not be questioned unless Jerome Powell doesn't want to let you.” It doesn't say any of that. The President's responsibility, the oath that the President takes, the oath that the Treasury Secretary takes, is to the Constitution. And the Constitution says you have to spend that money. So that was my point. Don't let all of these naysayers tell you you can't do what you are constitutionally required to do. And if they get in your way, steamroll over them. All right. Thanks, everybody, for tuning in. It's always a pleasure to talk with Rohan Grey@rohangrey not only because he's brilliant, but he has a great accent. So make sure you tune in to the rest of the episodes in this three part series and we'll see you at the next episode.