Archives for posts with tag: U.S. Treasury

The Congress shall have Power … To borrow Money on the credit of the United States; … To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; To provide for the Punishment of counterfeiting the Securities and current Coin of the United States … [and] To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”

U.S. Constitution, Article I, Section 8[1]

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

U.S. Constitution, Article I, Section 10[2]

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

U.S. Constitution, 10th Amendment[3]

[This is Larry, and we’re back to talk more about appropriations, money, debt and cash. Once again Elemental Zoo has me researching the law of things about which I know practically nothing, only this time it’s worse. I don’t know much about economics, either. Nevertheless, I will soldier on, but carefully, by breaking our subject into small pieces, and attempting to make sense of the parts. Hopefully when we’re done the sum of all of them also will make sense.

Last time we discussed federal appropriations – i.e., spending authority – and how our government is required to discontinue operations and send people home when it runs out of the authority to spend to keep things going. But we also noted that, even if our government has authority to continue operations, it may not be able to pay all of its bills. That’s because each year our government operates at a deficit; its revenues are less than expenditures, and it makes up the difference by borrowing from strangers. Unfortunately Congress has put a limit on the government’s total debt, so at some point it may run out of cash and not be able to borrow to make payments as they come due.

At that point I made a bad joke. I suggested that, since Congress had the authority to print money, it should just authorize the government to print a few trillion extra dollars, and tell President Trump to apply that to retiring a large part of the federal debt. All parties could agree that this was a “one-time” maneuver, not to be repeated, so investors shouldn’t worry. After all, they would get their money back. And by the way, Congress already may have authorized the Government to do this, by permitting the Secretary of the Treasury to mint bullion coins of unspecified denomination at his [or her] discretion[4]. Also there are historical precedents for issuing more money when needed, most notably in Weimar Germany[5], but also more recently in Zimbabwe[6] and today possibly in Venezuela.[7]

It’s a bad joke, but raises a good question, to wit: What role does our Congress have in making the physical dollars that you and I spend in our daily lives. Can Congress print more whenever it wants to?]

The Constitution

So what does Article 1, Section 8 of our Constitution say? The relevant parts are quoted above. Congress has the power to “coin” money and regulate the value thereof. The states do not. Article 1, Section 10 says the states can’t “coin” money, “emit” bills of credit, or make any “thing” except gold or silver coin something that can be tendered to satisfy a debt. States can’t make money at their own discretion; they have to use the stuff created by the feds.

So how about paper money? Who can make that? Obviously not the states, but how about Congress? Does the power to “coin” money include the power to print the paper kind? That question was raised, sort of, to the Supreme Court in the early 19th Century. The decision, an opinion authored by John Marshal, our first famous Chief Justice, is McCulloch v, Maryland.[8]

That case involved a central bank – the Second Bank of the United States – created by Congress to move money for the central government. Maryland challenged the constitutionality of the Bank, arguing that Congress had no specific authority to create such a thing, and therefore was barred from doing so by the 10th Amendment. Powers not delegated to the United States were reserved for the “States” or the “People.” And since the Bank wasn’t properly authorized, neither were its works. So said Maryland.

The Court saw it differently. There is no requirement that the Constitution specifically authorize a central bank. The power to raise revenue, and apply it to “national purposes” implied “the power [to convey] money from place to place, as the exigencies of the nation may require, and [to employ] the usual means of conveyance.”[9] In short, if the Government can coin, raise and spend money, it can create a bank if one is “appropriate” to help it do the job.[10] And if that bank needed to issue banknotes on behalf of the federal government, then so be it. The notes issued by the Second Bank weren’t directly in play in McCulloch v, Maryland, but the bank was upheld and, by implication, so was its currency.

I wouldn’t call that an iron-clad legal opinion; it’s more of an educated guess by an amateur; but there’s lots of our paper money out right now and nobody seems to mind. So I’m not losing any sleep over my conclusion.

Paper Money Today

How do we make paper money? Well, the actual printing is complex, in large part because of the security countermeasures governments have to use to foil counterfeiters, hackers and other bad people;[11] but the bureaucracy involved is not too bad. The Federal Bureau of Printing and Engraving [the BPE], an organization within the Department of the Treasury, does the actual work. It prints money – so-called Federal Reserve Notes – to be delivered to the Federal Reserve System, the current version of our central bank. “U.S. currency,” it says, “is used as a medium of exchange and store of value around the world.”[12] Currently there are “approximately $1.43 trillion worth of Federal Reserve notes in circulation.”[13]

These are big numbers, but what do they mean? Well, first that paper money is printed [and destroyed] on the order – or more likely the recommendation – of the Federal Reserve. At the end of the day, the Federal Reserve can’t order the Treasury to do anything.[14] But the Fed is responsible by law for supervising the issuance and retirement of [Federal Reserve] notes – our paper currency.[15] So as a bureaucratic matter I don’t see Treasury’s Bureau of Printing and Engraving turning down many requests from that source.

And how does the Federal Reserve determine how much paper money needs to circulate? Good question. [16] According to the Fed, it looks at “payments of currency to and receipts of currency from circulation and the number of unfit notes destroyed at the Reserve Banks.” Fed staff estimates demand for currency “based on monthly monitoring, forecasts of growth rates for payments of currency to circulation and receipts of currency from circulation, operational factors, and other policy considerations.” Historically, “more than 90 percent of the notes that the Board orders each year replace unfit currency that Reserve Banks receive from circulation.”[17]

There, isn’t that clear? What I get from it is that the Fed looks at the actual ebb and flow of U.S. currency in the world, then throws in “other policy considerations” when deciding how much more to print. Don’t be paranoid, folks, but when bureaucrats start talking about “policy considerations,” we just naturally want to ask more questions. That’s kind of an iron rule with this blog, no matter what the subject; in this case we have yet to find answers; but stay tuned. We haven’t given up.


At the end of the day our most excellent Congress has the final say about how much U.S. paper money circulates in the world. It’s Congress that has the power to “coin money;” granted it has created instrumentalities to help with that, the Federal Reserve and Treasury’s Bureau of Printing and Engraving, but they can be changed by legislation; the Constitution cannot. So “Watch the Skies!” – No, wait, that’s a different movie – “Watch your Congressperson!” to see if he or she begins to preach new or innovative solutions to our budget problems. Pay special attention if the magic solutions involve printing lots of greenbacks.[18] Otherwise, have a nice day.

[1] See U.S. Constitution, Article I, Section 8. We prefer to get the Constitution and the first 10 Amendments [the Bill of Rights] from the National Archives, at . You can find Amendments 11 – 27 at

[2] See U.S. Constitution, Article I, Section 10.

[3] See U.S. Constitution, Amendment X, available at

[4] See The Washington Post, Wonkblog, Matthews, Michael Castle: Unsuspecting godfather of the $1 trillion coin solution (2013/01/04), at . Actually, I wasn’t able to verify the precise quote given, but I found something similar at 31 U.S.C. §5112(k): “The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.” You can find 31 U.S.C. §5112 at

[5] See the blog of 11/12/2010, The Wages of Hyperinflation, at . That one deals with hyperinflation in Weimar Germany. See also Adam Smith, Paper Money (Summit, 1981) at Ch. 4, The Chilling Symbol: A Wheelbarrow Full of Money, p. 55 – 63.

[6] See CNN World, Zimbabwe to print first $100 trillion note (January 16, 2009), at

[7] See Los Angeles Times, Linthicum et al., Roiled by protests and soaring inflation, Venezuela is pushing out foreign companies (April 22, 2017), available at

[8] See McCulloch v, Maryland, 17 U.S. (4 Wheaton) 316 (1819). [According to the Supreme Court’s website, it was actually decided on March 6, 1819]. If you can’t find an official report, you can get an unofficial version from Justicia at .

[9] Id. at 407-408: “Although, among the enumerated powers of Government, we do not find the word “bank” or “incorporation,” we find the great powers, to lay and collect taxes; to borrow money; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies. The sword and the purse, all the external relations, and no inconsiderable portion of the industry of the nation are intrusted [today, entrusted] to its Government. It can never be pretended that these vast powers draw after them others of inferior importance merely because they are inferior. Such an idea can never be advanced. But it may with great reason be contended that a Government [entrusted] with such ample powers, on the due execution of which the happiness and prosperity of the Nation so vitally depends, must also be [entrusted] with ample means for their execution. The power being given, it is the interest of the Nation to facilitate its execution. It can never be their interest, and cannot be presumed to have been their intention, to clog and embarrass its execution by withholding the most appropriate means.”

[10] The court noted that the decision might have been otherwise under the Articles of Confederation, the compact that preceded our Constitution, and earlier drafts of Article I, Section 8 also required all federal powers, even incidental or minor ones, to be expressly defined. But in the end, that’s not what the Constitution says. Instead, it authorizes Congress to enact all laws that are “necessary and proper” for carrying into execution its powers or any other powers vested in the Government. [That’s in Article I, Section 8]. “The result of the most careful and attentive consideration bestowed upon this clause is, that if it does not enlarge, it cannot be construed to restrain the powers of Congress, or to impair the rights of the legislature to exercise its best judgment in the selection of measures to carry into execution the constitutional powers of the government. If no other motive for its insertion can be suggested, a sufficient one is found in the desire to remove all doubts respecting the right to legislate on that vast mass of incidental powers which must be involved in the constitution, if that instrument be not a splendid bauble.” Id. at 420 – 421.

[11] If you want to know more about how to print money, Wikipedia has an impressive introductory write-up at .

[12] See Department of the Treasury, Bureau of Engraving and Printing, at U.S. Currency,

[13] Id., citing the Federal Reserve Bank.

[14] See 12 U.S.C. §246: “Nothing in [the Fed’s enabling legislation] shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this chapter in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.”

[15] See 12 U.S.C. §248(d), Supervising and regulating issue and retirement of notes.

[16] To answer this we looked at the 102nd Annual Report of the Board of Governors of the Federal Reserve System (2015), which is the most recent one we could find. We’ll cite it as 102nd Annual Report at __. It’s available at .

[17] See 102nd Annual Report at p. 401, Currency Budget.

[18] I don’t want to be a pest, but do take a look at our blog of 7 years ago. See the blog of 11/12/2010, The Wages of Hyperinflation, at [Hyperinflation in Weimar Germany]. See also Adam Smith, Paper Money (Summit, 1981) at Ch. 4, The Chilling Symbol: A Wheelbarrow Full of Money, p. 55 – 63.


The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) may not be more than $14,294,000,000,000, outstanding at one time, subject to changes periodically made in that amount as provided by law through the congressional budget process described in Rule XLIX [1] of the Rules of the House of Representatives or as provided by section 3101A or otherwise.

31 U.S.C. § 3101(b)[1]

[OK, this is Larry and I’m back again to discuss yet another way our government might fall apart. You’re familiar, no doubt with what happens when Congress fails to appropriate money to fund one or more government activities. People have to go home. It was decided way back in the Carter Administration[2] that government employees who went to work when there were no appropriations, but weren’t “essential” to protect life or property, quite likely were committing a criminal act. What’s the crime? Why, violating the “Anti-Deficiency Act,[3]” i.e., the statute that prohibits federal employees from obligating the government to spend money when they don’t have the authority to do so. That’s what “appropriations” are: the authority to financially obligate the government.

You see, when federal employees go to work they’re automatically entitled to be paid for their time. So just by showing up they obligate the government to pay them, even when the government has no authority – no appropriations -to do so. Well, couldn’t an employee offer to work for free for a day or two, just to keep things running? No, says our government; federal employees have no authority to waive their right to be paid.[4] So they have to stay home, unless they protect life or property.

So when was that last a problem? No doubt you remember: It was 4 years ago, back when we faced a “fiscal cliff.” The “cliff” was that there were no appropriations for a time to support some government operations, and some government folks had to stay home. You’ll be happy to know that we don’t have the same situation this month. Appropriations are in place, for the most part[5]; but now we have a different problem. The problem is, when the bills come due, we [the United States] may not have the cash to pay them.]

Burgeoning Debt

How could that be? Well, because the U.S. runs a deficit every year; while it collects lots of taxes and has other revenues, it doesn’t collect enough to pay all the bills. The U.S. funds its yearly deficit by borrowing on the Treasury market. Unfortunately Congress has limited the total amount the U.S. can borrow; you can find that in the quote that begins this piece; and, once again, we’re approaching the ceiling.[6] By the way, the current ceiling isn’t $14.3 trillion; it’s higher, due to subsequent adjustments. The Treasury keeps track of these sorts of things.[7]

So what is Congress to do? Raise it again? And if so, will there ever be a point at which we can stop doing that?[8] What happens if eventually there’s just too much debt out there? When will we know that’s the case?

That’s what the argument is about. The issue was kicked over to the “Government Accountability Office” back in 2010 which, of course, duly issued a report. The GAO’s basic opinion was that the debt limit doesn’t restrict Congress’ ability to authorize spending at any level. Instead, it restricts the Treasury’s ability to pay the inevitable bills.[9] That is, it creates a series of crises followed by successive increases in the ceiling. “Meanwhile,” GAO said, its “long-term simulations show that absent policy changes, federal debt will increase continually over the next several decades.”[10]

Debt Default

So here we are, approaching the ceiling again. Perhaps it’s time to start thinking about the unthinkable. What happens if the U.S. simply doesn’t pay all of its bills? Well, that’s not a new idea. The Treasury is adamantly opposed to that kind of thing. It says: “Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history. That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the 2008 recession.”[11]

That’s the current position of the Trump Administration, but it’s not very much different from that of its predecessors. Why do all these people reach the same conclusion? Well, at bottom it’s because they’re convinced that, if the U.S. defaults an any debt payments, of any type, that ultimately would reflect on our national credit rating – which currently is very good – causing it to be downgraded, and thereby raise the interest rate we might have to pay for future borrowings.

That wouldn’t be a problem, I suppose, if we ran a budget surplus; but we don’t; we need to borrow lots every year; and rising interest rates will simply add to the amount we borrow. I don’t know if that would lead to “another financial crisis;” it’s said that we’ve never defaulted before, so who really knows? But rising interest rates can’t be a good thing for any debtor who has to go back to his [or her] lenders.

Prioritize Payments?

So are there other options? Well, Congress thought of some. There’s the notion, for example, that perhaps we ought to stick with the current debt limit, and simply prioritize our payments according to what’s important to us. Like the middle-class person strapped for cash, we might skip the electric bill for a month and pay the car loan, or vice versa. In truth a proposal sort of like this passed the House a couple of years ago[12]. [As near as I can tell, it never made it through the Senate.] It basically exempted from the debt ceiling all principle and interest payments due on bonds (a) held by the public, or by (b) the Social Security Trust Funds. All other payments would be curtailed.[13]

The bill is interesting – especially to someone on Social Security – but all such attempts to prioritize debt payments were [and apparently are] opposed by the Treasury. In May of 2011 it said: “Adopting a policy that payments to investors should take precedence over other U.S. legal obligations would merely be default by another name, since the world would recognize it as a failure by the United States to stand behind its commitments.”[14] No doubt the same could be said about an attempt to give preference to payments under Social Security.

Coin More Money

Or perhaps Congress already has resolved the problem a different way. Four years ago we pointed out that, in addition to appropriating funds and incurring debt, Congress has the power to coin money. And, according to The Washington Post, Congress may have given one bureaucrat the power to solve our problem with the debt limit.[15]

It seems that the Treasury Secretary has authority “notwithstanding any other provision of law,” to “mint and issue platinum coins in such quantity and of such variety as the Secretary determines to be appropriate.”[16] So, problem solved: All the Treasury has to do is mint up a few such coins in the $ 1 trillion denomination, deposit them wherever it keeps valuables (perhaps in Fort Knox[17]), and offset that amount from our outstanding debt. Presto! Federal net debt lowered well below the statutory ceiling.

We’ve said this before, by the way, but not seriously. Other countries have tried to print money to get out of a fix, but haven’t had very good results.[18] No doubt we’d have the same experience if we did the same thing.


Sometimes I wonder if, centuries from now, future archeologists, combing through the rubble of the Great American Empire, will stop to wonder what happened, why that Great Thing eventually collapsed. Will they find we had a deadly plague, or a series of them; or a great famine, due to global warming; or a series of violent, destructive wars? Or will it be something much simpler than that. Will they find, perhaps, that we failed because we had an accounting problem, and just couldn’t control our money?

I have no idea. What do you think?




[1] This language appears in Title 31, Money and Finance, Subchapter III, Financial  Management, Chapter 31, Public Debt. The official online version of this part of the U.S. Code is available from the Government Publishing Office at    If you would rather try an unofficial, but reliable version, try the Cornell Law School, at

[2] James Earl Carter was President of these United States from January, 1977 through January, 1981. See the Wikipedia entry at  . That’s also when the Iranians threw out their Shah and went with the theocracy they have today. Some say the current government of Iran doesn’t like us because we supported the Shah, and sold him lots of weapons, and perhaps helped him gain power in the first place.  This blog is not about that.

[3] For a non-technical discussion, see Time, Nicks, The Man Who Invented the Government Shutdown (Oct. 09, 2013), available at

[4] Id. We’re looking for a copy of the old Civiletti opinion. If we find it, we’ll publish it in a later blog.

[5] Actually, that’s what I think, but I haven’t researched the matter, so I’m not offering an opinion as to whether there are appropriations currently in place to cover all government functions, or whether they are adequate for their untended purposes. That’s not what we’re discussing today.

[6] See  GAO 11-203, Debt Limit, Delays Create Debt Management Challenges and Increase Uncertainty in the Treasury Market (February 11, 2011), available at . This will be cited as “GAO -11-203 at __.”

[7] See Treasury, Debt Limit, at ; Treasury, Monthly Statement of The Public Debt of the United States (March 31, 2017), at . Today the authorized debt limit, for publicly held securities and intergovernmental securities, is close to $20 trillion. The limit on publicly held debt remains at around $14.4 trillion.

[8] See GAO -11-203 at What GAO Found:The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred.”

[9] See GAO-11-203 at p. 1: “The debt limit does not restrict Congress’ ability to enact spending and revenue legislation that affect the level of debt or otherwise constrain fiscal policy; it restricts the Department of the Treasury’s … authority to borrow to finance the decisions enacted by the Congress and the President.”

[10] Id.

[11] See U.S. Treasury, Debt Limit, Myth v. Fact, available at

[12] See House Report No. 113-48, Full Faith and Credit Act, available at

[13] Id. at p. 4: “The provision provides that in the event the debt of the United States Government reaches the statutory limit, the Treasury Secretary shall issue debt to the extent necessary to pay principal and interest on certain obligations as defined. Obligations for which debt shall be issued are limited to those obligations held by the public or the Social Security Trust Funds. Obligations issued pursuant to this authority are exempt from the statutory debt limit. Section 2 also requires a weekly report from the Treasury Secretary if authority under subsection 2(a) is exercised that accounts for obligations due and amounts issued.”

[14] See n. 11.

[15]See The Washington Post, Wonkblog, Matthews, Michael Castle: Unsuspecting godfather of the $1 trillion coin solution (2013/01/04), at

[16] Actually, I wasn’t able to verify this precise quote, but I found something similar at 31 U.S.C. §5112(k): “The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.” You can find 31 U.S.C. §5112 at

[17] For more about the Treasury’s bullion depository at Fort Knox, go to Wikipedia and search “United States Bullion Depository,” or simply click here:

[18] See CNN World, Zimbabwe to print first $100 trillion note (January 16, 2009), at   See also the blog of 11/12/2010, The Wages of Hyperinflation, at . That one deals with hyperinflation in Weimar Germany.