In the past 24-hours I’ve been reading the postmortems on the Coin; I just watched the Sunday morning shows. In my opinion, the Press is missing the story.
The key sentence from the White House that killed the Coin for good:
“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit”
I think the line “Treasury nor the Fed”, is baloney. It was the Fed, in a message delivered by Bernanke, that caused Obama to back off on any consideration of the Coin. There might have been wiggle room in existing law to print a Coin, but there is nothing that says that the Fed had to take it. And Bernanke said, “No”. When Obama ditched the Coin, he did it because it was no longer an option. Bernanke took the option off the table. The WH statement makes it sound as it it was their decision, that’s just smoke and mirrors.
What bothers me about this is the timing. Why would Treasury/WH go public with its position on the Coin weeks before the deadline was reached? There are at least 14 days left before the SHTF, so, “Why now?”
Did Bernanke put pressure on the WH with a threat to go public that he was unwilling to accept a Coin as valid payment? If so, the WH would have wanted to get ahead of the Fed, so Treasury came out with the nix.
I think Bernanke got some calls from other Central Banks. They told him it would be a dangerous precedent for America to do this. If there are coins to be printed, it would be better if some other country (possibly Japan) do it first. After all, the dollar is still the #1 reserve currency. The foreign CBs have some say in this.
I also think that Bernanke got calls from Republican leaders. Heavy hitters, like Richard Shelby (R, Al), can get Bernanke on the phone. I’m sure that these folks told Ben that if the Fed facilitated the Coin, they would raise hell. They would rake Bernanke over the coals.
But guys like Bernanke don’t just roll over when someone whistles. And old timers like Shelby don’t make one sided-deals. So what could have been winked, nodded and agreed to by all of the actors on this stage?
Take the Debt Limit debate completely off the table.
Republicans have everything to lose if they force the country to functionally default on the debt. If they did that, they would get murdered. Kiss-off the Republican party for another eight years. The Reds would probably lose the House bi-elections, and their majority; and they know this.
If Congress passed a 6-12 month extension of the Debt Limit, it would not diminish the Republican bargaining position at all. In fact, it would strengthen their position, and improve their public perception (from the current level of +0.01).
The Debt Limit is not the only line in the sand for Republicans. They have the Sequestered Amountsthey can fight over, but even that is a sideshow. The real issue that will trip up the Administration is the need for a Continuing Resolution. The CR is required by law, if there is no budget approved by the House. It is now 1,350+days since the US has had a budget. There is no way in hell we are going to have one in the next 90 days.
If the Republicans want to shut down the government, they have a much better issue to do it over than the Debt Limit. (The CR will do the “job” ) So watch for what appears to be a “concession” from some Republicans this week. Don’t cheer too loudly if this happens (the markets will – at first). It doesn’t change the fact that a showdown is coming, and it’s coming pretty quick. The chance for a big brawl, that ends up shutting the government down, is still very much in the cards.
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