Here's why Ben Bernanke killed the platinum coin, and what it means for the debt-ceiling showdown
The coin will not be minted.
At least, not in anything remotely close to 13-digit denominations. As Ezra Klein of the Washington Post reports, the Treasury and Federal Reserve have ruled out creating a trillion-dollar coin, which was a real possibility thanks to a crazy loophole, to stop us from defaulting on our obligations if the debt ceiling isn't raised. It's Congress or bust, when it comes to paying our bills on time.
This was probably the least surprising development in the history of developments. It wasn't just that the trillion-dollar coin would have been a political liability because it sounds silly -- that was the best, and only, argument against it -- but rather that it required the Fed to give up its sole control of monetary policy. The Fed would not do that. Now, the Treasury minting trillion-dollar coins sure sounds different from the Fed buying bonds, but it's not. It's just sterilized quantitative easing (QE), albeit with a platinum tint. Or, in English, it's printing money, buying stuff, and preventing this new money from increasing inflation. The Fed does this when it 1) electronically "prints" money, 2) buys bonds from banks with this new money, and 3) ties up these new bank reserves with operations like reverse repos. The Treasury does the same when it 1) mints the trillion-dollar coin, 2) uses it to pay for the government's existing obligations, and 3) the Fed sells bonds in equal measure to suck the money out.
You might wonder why the Fed would play along if the Treasury turned to coin seigniorage. Answer: the Fed has its inflation target, and it cares very much about hitting it. The Fed would be compelled to counter the Treasury's coin-minting, although, as as Greg Ip of The Economist points out, the Fed might not need to do so for quite awhile, and could resort to raising interest rates on interbank lending and reserves instead of selling long-term bonds. In either case, the Treasury would be dragging the Fed into QE it didn't want, and, as University of Oregon professor Tim Duy put it, effectively blurring the line between fiscal and monetary policy. Fed independence would be a thing of the past ... unless it killed the coin first. Which, of course, it did, as Zeke Miller of Buzzfeed reports. The platinum coin gambit depended on the Fed accepting it as legal currency for the Treasury's account, and the Fed said it would not. RIP, trillion-dollar coin.
Now, the trillion-dollar coin may be dead, but the debt ceiling is not. President Obama continues to insist he will not negotiate over it, but the administration has said it won't use either of the most likely work-arounds -- the 14th amendment or the platinum coin -- if it comes to that. That leaves the president with (at least) four more outlandish-ish options if House Republicans refuse to pay the bills they authorized, and one actual option. Here they are, from least likely to most likely.
-- The Treasury could repo Mount Rushmore to the Fed. As Karl Smith of Modeled Behavior argues, the Treasury could theoretically sell anything valuable enough, like offshore oil rights, to the Fed, and agree to buy it back later. This kind of repurchase (repo) agreement would give the Treasury cash flow if it's running so low that it can't pay the interest on our debt, but there are two big problems. First, repo agreements are not, economically-speaking, sales, but rather loans, so it would almost certainly violate the debt ceiling. And second, there's no way the Fed would do this. So there's that.
-- The Fed could send some of its bonds back to the Treasury as dividends. Printing money is a pretty good way to make money, never more so than the past few years. The Fed remits most of its profits -- $89 billion in 2012 -- to the Treasury, which kind of makes the Treasury its sole shareholder. As @IvanTheK first suggested, the Fed could advance some of these profits to the Treasury as a dividend if there wasn't enough incoming revenue to pay the interest on the debt on any given day during a debt ceiling standoff. It's an elegant solution, but, again, not one the Fed is likely to go for.
-- Use IOUs to pay our bills. If we don't hit the debt ceiling, we will immediately have to stop paying 40 percent of our bills ... unless we pay the rest with IOUs. Paul Krugman proposed something along these lines, and law professor Edward Kleinbard points out that California successfully used them during its own budget crisis in 2009. Back then, California paid people with IOUs yielding 3.75 percent that people could trade to banks for cash at a slight haircut. In other words, the banks made money off the trades. The federal government could do the same, but there are a few legal hurdles. If the IOUs pay any interest, it's hard to see how they're not debt; but if they don't pay any interest, it's hard to see how they're not money. Either would be illegal. Maybe everybody would be happy enough with this arrangement not to challenge it, like in California, but maybe not -- not to mention the awful optics of "Obama dollars".
-- Refuse to negotiate, and blame the Republicans for any economic damage. Welcome to everybody's favorite game, debt ceiling chicken! Here's how it works. Obama says there's nothing he can do to lift the debt ceiling on his own; that's it up to Republicans to pay the country's bills; and that if they don't, they will get blamed for Social Security checks not going out. It's the strategy former Treasury Secretary Robert Rubin used back in the mid-90s when then-Speaker Newt Gingrich threatened to hold the debt ceiling hostage, and it's the strategy Obama seems to be using now. As Ezra Klein points out, Obama has deliberately ruled out all of these different debt ceiling end-arounds, because he doesn't want Republicans to think they have any alternative to increasing it themselves. Now, maybe half of them really do welcome default, as Politico reports, but maybe not. That's a terrifying bunch of "maybes", but it's where we are today.
In other words, Obama is happy not to mint the coin, because he thinks minting it reduces his leverage. Now it's a psychological game of chicken, with Obama and Republicans accelerating toward the other, each convinced they cannot swerve, and when they meet in the middle, they'll set off the mother of all global market crashes.
How the election looks to backers of the Republican nominee
Perhaps the hardest thing to do in contemporary American politics is to imagine how the world looks from the other side. I’ve made no secret of why, as a Republican, I oppose Donald Trump and what he stands for. But I’ve also been talking to his supporters and advisors, trying to understand how they see and hear the same things that I do, and draw such very different conclusions. What follows isn’t a transcription—it’s a synthesis of the conversations I’ve had, and the insights I’ve gleaned, presented in the voice of an imagined Trump supporter.
“You people in the Acela corridor aren’t getting it. Again. You think Donald Trump is screwing up because he keeps saying things that you find offensive or off-the-wall. But he’s not talking to you. You’re not his audience, you never were, and you never will be. He’s playing this game in a different way from anybody you’ve ever seen. And he’s winning too, in a different way from anybody you’ve ever seen.
The most personally moving, and most fundamentally patriotic, moment of the Democratic National Convention was the appearance by the bereaved parents of Army Captain Humayun Khan, and the statement about the meaning of their son’s life and death, and about the Constitution, by Mr. Khizr Khan.
After Khizr Khan spoke, politicians and commentators on most networks said they were moved, humbled, inspired, choked up. (Commentators on Fox did not say these things, because their coverage cut away from the Khans for Brit Hume and Megyn Kelly, plus a Benghazi ad.)
Not the people—the term. How generational divisions have driven down voter turnout over the last century of American politics.
Throughout the 2016 U.S. presidential election, pundits and activists have debated how to get more Millennials involved in politics, always stressing their distinctive character. But it was actually this tendency to slice up the electorate into unique generations that drove young people from politics in the first place.
In the 19th century, children, youths, and adults “mingled freely together” at rowdy campaign rallies, lured by the holy trinity of booze, barbecue, and bonfire. Older citizens introduced young people to politics, helping to drive voter turnouts to their highest levels in U.S. history. “It’s the ‘big fellow,’” observed the Republicans canvassing in pool halls and saloons in the 1880s, who does the best job getting “the ‘little fellow”’ into politics.
Narcissism, disagreeableness, grandiosity—a psychologist investigates how Trump’s extraordinary personality might shape his possible presidency.
In 2006, Donald Trump made plans to purchase the Menie Estate, near Aberdeen, Scotland, aiming to convert the dunes and grassland into a luxury golf resort. He and the estate’s owner, Tom Griffin, sat down to discuss the transaction at the Cock & Bull restaurant. Griffin recalls that Trump was a hard-nosed negotiator, reluctant to give in on even the tiniest details. But, as Michael D’Antonio writes in his recent biography of Trump, Never Enough, Griffin’s most vivid recollection of the evening pertains to the theatrics. It was as if the golden-haired guest sitting across the table were an actor playing a part on the London stage.
“It was Donald Trump playing Donald Trump,” Griffin observed. There was something unreal about it.
Last night, in her overall very successful acceptance speech, Hillary Clinton said with ruthless precision about her opponent:
Ask yourself: Does Donald Trump have the temperament to be Commander-in-Chief?
Donald Trump can't even handle the rough-and-tumble of a presidential campaign.
He loses his cool at the slightest provocation. When he's gotten a tough question from a reporter. When he's challenged in a debate. When he sees a protestor at a rally.
Emphasis added, as it was in her delivery:
Imagine—if you dare, imagine—imagine him in the Oval Office facing a real crisis. A man you can bait with a tweet is not a man we can trust with nuclear weapons.
I can’t put it any better than Jackie Kennedy did after the Cuban Missile Crisis. She said that what worried President Kennedy during that very dangerous time was that a war might be started—not by big men with self-control and restraint, but by little men—the ones moved by fear and pride.
A collection of books recommended by The Atlantic’s editors and writers
The Atlantic’s editors and writers share their recommendations for summer reading—new titles, old favorites, and others in between.
By Yaa Gyasi
In her first novel, Yaa Gyasi cleverly weaves the intergenerational tale of a family through a series of short, but interrelated stories set in what’s now Ghana during the mid-18th century. The two women at the center of the novel, Effia and Esi, are half-sisters who wind up on vastly different paths. One is captured during a battle between tribes, sold, and winds up on a slave ship bound for the U.S. The other—separated from her village and married off to a British slaver—ends up living on top of the dungeons that hold her own kin and hundreds of others who would also become slaves. The novel traces the lineage of these women through the tales of their children, and their children’s children, and so on—up until the present day.
Physicists can’t agree on whether the flow of future to past is real or a mental construct.
Einstein once described his friend Michele Besso as “the best sounding board in Europe” for scientific ideas. They attended university together in Zurich; later they were colleagues at the patent office in Bern. When Besso died in the spring of 1955, Einstein—knowing that his own time was also running out—wrote a now-famous letter to Besso’s family. “Now he has departed this strange world a little ahead of me,” Einstein wrote of his friend’s passing. “That signifies nothing. For us believing physicists, the distinction between past, present, and future is only a stubbornly persistent illusion.”
Einstein’s statement was not merely an attempt at consolation. Many physicists argue that Einstein’s position is implied by the two pillars of modern physics: Einstein’s masterpiece, the general theory of relativity, and the Standard Model of particle physics. The laws that underlie these theories are time-symmetric—that is, the physics they describe is the same, regardless of whether the variable called “time” increases or decreases. Moreover, they say nothing at all about the point we call “now”—a special moment (or so it appears) for us, but seemingly undefined when we talk about the universe at large. The resulting timeless cosmos is sometimes called a “block universe”—a static block of space-time in which any flow of time, or passage through it, must presumably be a mental construct or other illusion.
Learning how to bond with my daughter, who found comfort in the familiarity of being alone, has come through understanding reactive attachment disorder.
My hands hover over the computer keyboard. They are trembling. I hold down the shift key and type the words with intention, saying each letter aloud: “R-e-a-c-t-i-v-e A-t-t-a-c-h-m-e-n-t D-i-s-o-r-d-e-r.” The words “reactive attachment disorder” are memory beads I gather into a pile and attempt to string along on a necklace.
I think back to when Judith, my neighbor who is a psychiatrist, offhandedly threw out the term the first time she met Julia. We were talking about babies who start their lives in orphanages, and she mentioned the disorder. She wasn't suggesting that my daughter Julia showed any signs, but she’d said it was a well-known problem with children who’d been adopted from Romanian orphanages in the '80s and '90s. I remember nodding my head and thinking, Shut up, Judith. We got Julia young. It shouldn't be an issue.
Last month, my wife and I found ourselves in a disagreement about whether or not our apartment was clean enough for guests—the type of medium-sized disagreement that likely plagues all close relationships. In the midst of it, there was a lull and, feeling exhausted all of a sudden, I got up and left the living room. In the bedroom, I immediately fell face down into the sheets. The next thing I knew it was 20 minutes later and my wife was shaking me awake. I hadn’t meant to fall asleep; I just felt so fatigued in that moment that there was nothing else I could do.
This wasn’t new for me. A few weeks earlier, I had come into conflict with an acquaintance over some money. We were exchanging tense emails while I was at my office, and I began to feel the slow oozing onset of sleep, the same tiredness that came on when, as a child, I rode in the backseat of the car on the way home from some undesired trip. A sleepiness that overtakes the body slowly but surely and feels entirely outside of your control.
It’s a staple in American homes, but at what environmental cost?
As Hurricane Katrina raged through New Orleans in 2005, neighborhood after neighborhood collapsed from flooding. Of the houses that stood, many still had to be bulldozed due to mold within the walls. But one building, a plantation-home-turned-museum on Moss Street built two centuries before the disaster, was left almost entirely unscathed.
“The Pitot house was built the old way, with plaster walls,” says Steve Mouzon, an architect who helped rebuild the city after the hurricane. “When the flood came, the museum moved the furniture upstairs. Afterwards, they simply hosed the walls—no harm done.”
The other houses weren’t built the old way. “All the homes around the Pitot house were lost because they were built with drywall,” says Mouzon.