The Debt Ceiling And The 14th Amendment

The Debt Ceiling And The 14th Amendment

House Minority Leader Nancy Pelosi, D-Calif. says she would use the 14th Amendment to automatically raise the debt ceiling if she were president.

Speaking to CBS Face the Nation, Pelosi says she would bypass Congress if they are not willing to raise the debt limit ceiling in order for the U.S. to avoid default.

The debt ceiling is about spending that has already occurred, Pelosi toldCBS News. Right now, we have to pay the bills that have been incurred. And if you want to say cut spending for what we do next, fine, but dont tie it to the debt ceiling.

The 14th Amendment states that 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.

This isnt a new argument, of course. It was made back during the debt ceiling debacle in August 2011 and advanced by several commentators and law professors at the time. Ultimately, the White House ended up explicitly rejecting the strategy while still in the middle of negotiations with House and Senate Republicans, a move that some Democrats criticized at the time. While the legal arguments regarding Section 4 of the 14th Amendment were interesting, it struck me back then that they were largely unpersuasive. At the very most, it seemed pretty clear that all the Amendment would authorize a President to do would be to prioritize payment in such a manner so that interest payments on the debt would have priority over other payments While broad, theres nothing in the provision that would seem to authorize the President to create entirely new debt despite the fact that the law explicitly stated that the Executive Branch could not do so.

Josh Marshall points out another problem with the 14th Amendment strategy:

Assume theres no constitutional problem to the President just going ahead and ignoring the debt ceiling. Theres also a market component. Simply put, the value of US Treasuries is the full faith and credit of the United States. World markets believe that promise is the closest thing in finance to certainty. And in moments of extreme uncertainty investors have even been willing to essentially pay the US government to hold on to their money for them.

But theres never been a case before except maybe arguably during the Civil War when the US government has issued bonds that are somehow in intra-governmental dispute. If youre buying US government debt, what if this particular auction is of Treasuries the sitting Congress says the Treasury Department isnt authorized to issue? There would be Court challenges filed immediately. Surely, youd prefer to wait for the ones that everyone agrees are OK. In practice, thered surely be some inverse premium on these Treasury notes since they wouldnt quite have the backing fo the full faith and credit of the US.

At a minimum that means the government would blow a lot of money simply because of that added uncertainty. But youd also now have what amounted to two classes of Treasuries the good ones and ones with an asterisk next to them. And as soon as you have that, at least some of the fixedness and clarity of what a US Treasury obligation represents would be blurred.

The implications of this for domestic and international financial markets are pretty easy to see,  and the economic impact wouldnt be plesant either. Rather than calming markets as the advocates of this approach seem to think, its more likely to create yet another level of uncertainty as parties try to figure out whether the new debt issued by Executive Decree is exactly legal, something that we wouldnt know the answer to until the matter made its way through any numbers of complicated legal challenges. Interest rates would likely increase across the board, and the economy would slow down as assuredly as it would if the President had done nothing. But, in this case, far more damage would be done because the integrity of U.S. debt would be called into question.

Theres also an important political issue at play here. If the President takes it upon himself to arbitrarily take action that the law was never intended to allow him to take, whether its via this 14th Amendment scenario or the more bizarre Platinum Coin opinion, it will be yet another example of the Executive Branch assuming power that it arguably was never intended to have in the name of a national emergency.  History tells us that these assumption of power are seldom followed by reductions in power once the so-called crisis is over. The consolidation of power in Washington in the wake of the Great Depression continued apace long after the economy had recovered. The powers assumed by the Executive Branch during the Cold  War remained even after the Soviet Union ceased to exist. The actions and precedents set by the Bush Administration in the name of the War On Terror were quickly taken up by President Obama and, in several important respects, expanded even further. Does anyone doubt the same thing would happen if the President assumed this kind of power over the nations fiscal situation?

The debt ceiling issue is a serious one, and it deserves to be treated seriously. Part of that includes recognizing that there are no easy answers to the problems that face us, and that tossing aside the law and the Constitution is not the answer.

The Debt Ceiling And The 14th Amendment

House Minority Leader Nancy Pelosi, D-Calif. says she would use the 14th Amendment to automatically raise the debt ceiling if she were president.

Speaking to CBS Face the Nation, Pelosi says she would bypass Congress if they are not willing to raise the debt limit ceiling in order for the U.S. to avoid default.

The debt ceiling is about spending that has already occurred, Pelosi toldCBS News. Right now, we have to pay the bills that have been incurred. And if you want to say cut spending for what we do next, fine, but dont tie it to the debt ceiling.

The 14th Amendment states that 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.

This isnt a new argument, of course. It was made back during the debt ceiling debacle in August 2011 and advanced by several commentators and law professors at the time. Ultimately, the White House ended up explicitly rejecting the strategy while still in the middle of negotiations with House and Senate Republicans, a move that some Democrats criticized at the time. While the legal arguments regarding Section 4 of the 14th Amendment were interesting, it struck me back then that they were largely unpersuasive. At the very most, it seemed pretty clear that all the Amendment would authorize a President to do would be to prioritize payment in such a manner so that interest payments on the debt would have priority over other payments While broad, theres nothing in the provision that would seem to authorize the President to create entirely new debt despite the fact that the law explicitly stated that the Executive Branch could not do so.

Josh Marshall points out another problem with the 14th Amendment strategy:

Assume theres no constitutional problem to the President just going ahead and ignoring the debt ceiling. Theres also a market component. Simply put, the value of US Treasuries is the full faith and credit of the United States. World markets believe that promise is the closest thing in finance to certainty. And in moments of extreme uncertainty investors have even been willing to essentially pay the US government to hold on to their money for them.

But theres never been a case before except maybe arguably during the Civil War when the US government has issued bonds that are somehow in intra-governmental dispute. If youre buying US government debt, what if this particular auction is of Treasuries the sitting Congress says the Treasury Department isnt authorized to issue? There would be Court challenges filed immediately. Surely, youd prefer to wait for the ones that everyone agrees are OK. In practice, thered surely be some inverse premium on these Treasury notes since they wouldnt quite have the backing fo the full faith and credit of the US.

At a minimum that means the government would blow a lot of money simply because of that added uncertainty. But youd also now have what amounted to two classes of Treasuries the good ones and ones with an asterisk next to them. And as soon as you have that, at least some of the fixedness and clarity of what a US Treasury obligation represents would be blurred.

The implications of this for domestic and international financial markets are pretty easy to see,  and the economic impact wouldnt be plesant either. Rather than calming markets as the advocates of this approach seem to think, its more likely to create yet another level of uncertainty as parties try to figure out whether the new debt issued by Executive Decree is exactly legal, something that we wouldnt know the answer to until the matter made its way through any numbers of complicated legal challenges. Interest rates would likely increase across the board, and the economy would slow down as assuredly as it would if the President had done nothing. But, in this case, far more damage would be done because the integrity of U.S. debt would be called into question.

Theres also an important political issue at play here. If the President takes it upon himself to arbitrarily take action that the law was never intended to allow him to take, whether its via this 14th Amendment scenario or the more bizarre Platinum Coin opinion, it will be yet another example of the Executive Branch assuming power that it arguably was never intended to have in the name of a national emergency.  History tells us that these assumption of power are seldom followed by reductions in power once the so-called crisis is over. The consolidation of power in Washington in the wake of the Great Depression continued apace long after the economy had recovered. The powers assumed by the Executive Branch during the Cold  War remained even after the Soviet Union ceased to exist. The actions and precedents set by the Bush Administration in the name of the War On Terror were quickly taken up by President Obama and, in several important respects, expanded even further. Does anyone doubt the same thing would happen if the President assumed this kind of power over the nations fiscal situation?

The debt ceiling issue is a serious one, and it deserves to be treated seriously. Part of that includes recognizing that there are no easy answers to the problems that face us, and that tossing aside the law and the Constitution is not the answer.


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