Friday, July 01, 2011

Does the 14th Amendment forbid a default?

This is getting a lot of press. Section 4 of the 14th Amendment,
Section. 4. 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. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
Passed during Reconstruction following the Civil War, Section 4 was inserted to prevent Southern states rejoining the Union from attempting to default on the debt incurred funding the Union war effort and to prevent Southern states from forcing the Treasury to assume the debt of the Confederacy.

Congress has authorized the budgets that spent the money as well as the bonds that funded that spending to this point and having authorized this debt, the Government cannot now default.

But, can the Treasury borrow money without new Congressional authority to fund current budgeted spending beyond interest payments on past debt? In other words, can the Treasury issue new debt to fund the already budgeted war in Afghanistan without a Congressional increase in the debt ceiling? Or does the 14th Amendment limit Treasury borrowing to simply honoring past obligations?

The GOP will say that the Treasury can't borrow anything without a Congressional increase in the debt ceiling. What would the current Supreme Court say? What kind of tortured word twisting would Scalia go through to find Section 4 has no modern meaning.

We may find out sooner rather than later. I don't care what the talking heads from the Village say, the GOP has no intention of increasing the debt ceiling on anything but their terms which means no new revenue.

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