Thursday, December 06, 2012

Does the 14th Amendment forbid a default, Ctd.

UPDATE: Before you invest the time read this post, go here first.  While the below is a solid legal defense, the market makes moot Constitutional remedies.

I raised this issue last time the debt ceiling was up.

President Obama is insisting he will no longer negotiate over debt ceiling increases "because we have got to break this habit before it starts."

Of course he's right.  Last time we were facing a debt ceiling crisis, I asked if Obama's negotiation over the debt ceiling had done permanent damage to the Presidency.  The glee with which Republicans in both houses of Congress speak of endless future fights on the debt ceiling suggest that Obama had indeed damaged the Presidency.  When Gingrich tried this ploy with Clinton, Clinton refused to bargain and in the eleventh hour, Gingrich capitulated and moved on to what he thought would be more productive threats: shutting down the government.

Back to Obama's silver bullet.   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.
Weed out the Civil War specific language, for the sake of clarity, and you have this:

The validity of the public debt of the United States, authorized by law,...shall not be questioned.

There are 2 issues here: 1, the repayment of all outstanding debts of the United States, and 2, issuing new debt to pay for current government spending authorized by Congress but for which the Treasury does not have sufficient funds to pay without issuing more debt.

I'm taking up the second matter first, because it's the most complicated.  Reasonable people can disagree about whether §4 allows the Treasury to borrow to fund ongoing spending already authorized by Congress when the Treasury has insufficient funds from income (taxes, etc) to pay the bills.  For example, Congress authorized the purchase of 32 F-35 fighter aircraft from by Lockheed Martin in FY 2012.  In reliance on the Congressional authorization and the DoD order, Lockheed Martin shelled out the cost to manufacture these very expensive aircraft.  Is this a "public debt..., authorized by law" as defined by §4? Lockheed Martin certainly thinks so, and most of their closest and dearest friends in Congress think not. 

The first category is much more straightforward.  This category is all Treasury securities/ U.S. debt issued to citizens, foreigners, investors and the Social Security and Medicare Trust Funds, etc.  There is no question that all debts issued by the Treasury up to the debt ceiling have been "authorized by law".  Congress has never question the legality of this debt.  By the plain language of §4, the repayment of this debt cannot "be questioned", not by Congress or the President.

In short, Congress lacks the power to compel the default of all U.S Treasury debt they have previously authorized.

Will Obama play this card?  I think he is obligated at least as to category one.  If I were him, at 9PM Eastern Time on the day the debt ceiling expires, with no action by Congress, I would go on national TV from the East Room and announce that pursuant to Section 4, of the 14th Amendment to the United States Constitution, the Secretary of the Treasury and the Treasurer of the United States have been directed to use all means necessary including the issuance of new securities to honor the debts of the United States.

I suppose Congressional Republicans could file suit in Federal Court seeking an order compeling the United States to default on it's debt, but I'm willing to wager they will not.

They can alway impeach the President ("high crimes and misdemeanors means what they say it means"), but again, I'm willing to wager recent history would prevail upon them to decide against that action as well.

In short, if Obama chooses this fight to defang the Congressional debt ceiling, I don't see how Congressional Republicans win. All monied Republican constituencies are going to side with getting paid, leaving only the hard-core ideological Right.

What do you think?

P.S.  If I were Pres and forced to operate the government only on current income, the first expense I cut would be Congressional salaries, but that's just me.

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