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Jack Lew: Avoiding Default Is Your Responsibility Too

Secretary of the Treasury Jack Lew

With the end of the Summer break, now comes the return of the debt limit dance. From Treasury Secretary Jacob Lew’s letter to John Boehner:

“Congress should act as soon as possible to protect America’s good credit by extending normal borrowing authority well before any risk of default becomes imminent.

“Based on our latest estimates extraordinary measures are projected to be exhausted in the middle of October. At that point, the United States will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day, The cash balance at that time is currently forecasted to be approximately $50 billion.

“. . . A cash balance of approximately $50 Billion would be insufficient to cover net expenditures for an extended period of time. And, on certain days, net expenditures could exceed such a cash balance.

“. . . Protecting the full faith and credit of the United States is the responsibility of Congress because only Congress can extend the nation’s borrowing authority . . .“

OK. So, only Congress can extend the nation’s borrowing authority. But it doesn’t follow from that fact that protecting the full faith and credit of the United States is the sole responsibility of Congress.

The 14th Amendment, Section 4 of the US Constitution says in part:

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. . .

As have all members of Congress, both Treasury Secretary Lew and the President of the United States have sworn to uphold the Constitution, and this means, among other things, that the duty of each one of these officeholders is to see to it that they do all they can do to prevent the validity of the public debt from being questioned.

As we approach the time when the debt limit, and the lack of agreement between the two parties in Congress, will force the Government to miss payments, Congress does have an obligation to raise the debt limit or remove it entirely. But, Treasury Secretary Lew and the President need to acknowledge that there are things they can do too to avoid a default on the public debt, apart from either reminding Congresspeople of their responsibility, or giving into Republican demands.

One method of getting around the debt limit that Jack Lew and the President have is Platinum Coin Seigniorage (PCS). The Federal Reserve Chairman and then Treasury Secretary Timothy Geithner took that option “off the table” in January of 2013, in the wake of a significant buildup of sentiment favoring its use. But off the table or not, that option is legal, and the Fed Chair’s opposition to using it isn’t controlling, since the Secretary can overrule the Fed Secretary on money matters they disagree upon, and force the Fed Chair to either get the face value of a Platinum coin deposited in the US. Mint’s Public Enterprise Fund (PEF) account credited, or resign.

There are any number of PCS options the President can use to get around the debt limit by generating coin seigniorage profits. I’ve outlined many of them here. Some stop with $1/2 Trillion coins, some go over $1 Trillion up to $5 Trillion, and still others envision very high face value coins ranging up to $60 Trillion and up. [cont’d.]

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Jack Lew: Avoiding Default Is Your Responsibility Too

Secretary of the Treasury Jack Lew

With the end of the Summer break, now comes the return of the debt limit dance. From Treasury Secretary Jacob Lew’s letter to John Boehner:

“Congress should act as soon as possible to protect America’s good credit by extending normal borrowing authority well before any risk of default becomes imminent.

“Based on our latest estimates extraordinary measures are projected to be exhausted in the middle of October. At that point, the United States will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day, The cash balance at that time is currently forecasted to be approximately $50 billion.

“. . . A cash balance of approximately $50 Billion would be insufficient to cover net expenditures for an extended period of time. And, on certain days, net expenditures could exceed such a cash balance.

“. . . Protecting the full faith and credit of the United States is the responsibility of Congress because only Congress can extend the nation’s borrowing authority . . .“

OK. So, only Congress can extend the nation’s borrowing authority. But it doesn’t follow from that fact that protecting the full faith and credit of the United States is the sole responsibility of Congress.

The 14th Amendment, Section 4 of the US Constitution says in part:

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. . .

As have all members of Congress, both Treasury Secretary Lew and the President of the United States have sworn to uphold the Constitution, and this means, among other things, that the duty of each one of these officeholders is to see to it that they do all they can do to prevent the validity of the public debt from being questioned.

As we approach the time when the debt limit, and the lack of agreement between the two parties in Congress, will force the Government to miss payments, Congress does have an obligation to raise the debt limit or remove it entirely. But, Treasury Secretary Lew and the President need to acknowledge that there are things they can do too to avoid a default on the public debt, apart from either reminding Congresspeople of their responsibility, or giving into Republican demands.

One method of getting around the debt limit that Jack Lew and the President have is Platinum Coin Seigniorage (PCS). The Federal Reserve Chairman and then Treasury Secretary Timothy Geithner took that option “off the table” in January of 2013, in the wake of a significant buildup of sentiment favoring its use. But off the table or not, that option is legal, and the Fed Chair’s opposition to using it isn’t controlling, since the Secretary can overrule the Fed Secretary on money matters they disagree upon, and force the Fed Chair to either get the face value of a Platinum coin deposited in the US. Mint’s Public Enterprise Fund (PEF) account credited, or resign.

There are any number of PCS options the President can use to get around the debt limit by generating coin seigniorage profits. I’ve outlined many of them here. Some stop with $1/2 Trillion coins, some go over $1 Trillion up to $5 Trillion, and still others envision very high face value coins ranging up to $60 Trillion and up.

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