Mark A. Patterson, senior fellow at the Center for American Progress, has made what I consider to be one of the worst arguments against the minting a trillion dollar platinum coin to deal with the debt ceiling. From Wonkblog:
The coin is a clever, nifty idea but it has problems. The one that gets overlooked the most is it wouldn’t actually make everything normal after it was invoked. It would be subjected to all kinds of challenges and litigation. As a straightforward matter the Federal Reserve wouldn’t give Treasury a trillion dollars for that coin. We looked carefully at it, but for both practical and legal reasons, the legal reason being the law obviously wasn’t meant for anything like this and the practical reason being that the Federal Reserve would need to cooperate and wouldn’t, it wouldn’t work.
The 14th Amendment shares similar problems in which you would invoke a constitutional crisis of sorts. One side would say the president broke the law and should be impeached. That would occupy all the oxygen in Washington. That’s not a reason not to do it if it’s the right thing to do. But if the objective is keeping our status as the safest and best investment in the world you’ve created all kinds of doubts about us. I don’t think proponents have thought enough about what would happen after you did it.
This sounds all serious and high-minded among self-styled technocrats but when you get down to it this absurd. That is not how real power works. The idea the Federal Reserve won’t “cooperate” by accepting legal tender from the United States government is ridiculous.
For all the silly nonsense about the Federal Reserve being quasi-private so it can be “independent” in all the ways that matter, it is part of the government. The only reason the Federal Reserve has any power is because it is part of the federal government and backed by the full power of the United States government. Their money only means something because the federal government has the guns make it mean something. If you don’t pay your bills and your taxes the police will take your stuff and put you in jail. Otherwise it is just paper.
If the Federal Reserve even tried to start picking and choosing what legal tender it would take from the federal government it would immediately be destroyed as a functioning concept. The Federal Reserve has no legal authority to defy the government nor any real power to do so. That is not how things work. It is the guy with the guns who ultimately who decides what is legal tender. A Federal Reserve that does not back the government will not be backed by the government. It would just be another building full of economists with no power.
There are other legal/policy arguments against the platinum coin, but saying it is won’t work because the Federal Reserve might destroy itself by breaking the law is not a real argument.
Photo in the public domain.