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Can Obama Unilaterally Lift the Debt Ceiling?

With the government still shut down and the debt ceiling limit about to be reached, some have argued that President Obama could invoke Section 4 of the 14th Amendment and order the Treasury Department to continue borrowing despite the statutory debt limit having been reached. Section 4 says:

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.

Historian Sean Wilentz wrote an op-ed in the New York Times arguing that this gives the president the authority to act unilaterally to prevent a default on the debt, but Jack Balkin, one of the preeminent constitutional law scholars in the country, pours some cold water on that theory:

The distinguished historian Sean Wilentz offers his advice to President Obama on the debt ceiling crisis.  First, Wilentz argues that the Republicans are acting in violation of Section 4 of the Fourteenth Amendment. On this particular issue, I agree with Wilentz for reasons I’ve explained elsewhere.

Second, analogizing Obama’s actions to those of Lincoln in the early days of the Civil War, Wilentz argues that the President could assume emergency powers and save the Union just as Lincoln did: “he could pledge that, if worse came to worst, he would, once a default occurred, use his emergency powers to end it and save the nation and the world from catastrophe.” Even if impeached, Obama would “undoubtedly earn[] the gratitude of a relieved people.”

Here I am not so sure. My view is that the President does not have the unilateral power under Section 4 to disregard the debt ceiling. He needs congressional authorization, because only Congress has the power to borrow money on the credit of the United States (Article I, section 8). As I haveexplained elsewhere, in the most dire emergency this authorization might even come after the President acts, as it has in the case of military emergencies, but an authorization is still required.

Balkin also argues that this would be a bad idea even if Obama had the authority:

Third, Wilentz assumes that Obama could stabilize the crisis by acting on his own. But there is good reason to believe that the opposite would occur. If Obama is impeached, then the issue will shift from the constitutionality of what the House has done (using the validity of the debt as hostage) to the legality of what Obama has done. He will lose the higher ground in the debate, and the country’s focus will be taken over by an impeachment trial for months, as the economy spirals ever downward. In the meantime, the validity of debt issued by the President will be repeatedly attacked in the courts by allies of the Republicans–who could purchase the new bonds and then demand a refund in order to create standing for a lawsuit.

President Obama seems to agree with him. When asked about this during his Tuesday press conference, he said:

I know there’s been some discussion, for example, about my powers under the 14th Amendment to go ahead and ignore the debt ceiling law. Setting aside the legal analysis, what matters is — is that if you start having a situation in which there — there’s legal controversy about the U.S. Treasury’s authority to issue debt, the damage will have been done even if that were constitutional, because people wouldn’t be sure. It’d be tied up in litigation for a long time. That’s going to make people nervous.

This seems unlikely to happen. Though it could also be that Obama might do this but doesn’t want to signal to the Republicans that he would do it, since that would give them no reason at all to lift the debt ceiling, knowing that he will prevent the worst outcome and give them a line of attack on him at the same time.

Comments

  1. eric says

    I tihnk Obama’s right. The real economic issue is whether our debtors think we will pay our debts. Its their confidence in our bonds etc. that matters. The President acting unilaterally, while Congress sits there telling the world that it’s not authorized, will not create that confidence.

    Of course the same could be said on the negative side; if we don’t raise the ceiling, some or many debtors could still have confidence that we’ll pay them off or fix the problem eventually. IANA economist, but analagous to a personal bankruptcy, what everyone would expect the US to do would be to prioritize its debts and pay (or partially pay) off the most critical ones. So maybe foreign countries that are already heavily invested just stick it out, while the individual market for future bonds collapses.

  2. trucreep says

    I think Jonathan Adler covered this on the Volokh Conspiracy as well. It’s definitely an interesting idea, but I think it is wise to not go down that road at this point.

  3. raven says

    One analysis I read, said the laws conflict.

    If we don’t raise the debt ceiling, the choice becomes, which law(s) do we break?

    Congress may have to authorize spending, but the law also says we have to pay our debts.

  4. Randomfactor says

    Saw another piece the other day that said Treasury could do essentially the same thing as the “trillion-dollar coin” idea by issuing some super-special bonds. Which is why the House GOP is talking about tying Treasury’s hands.

    But dammit, I wanna see Obama hold up a Trillion-Dollar platinum coin honoring Ronnie Reagan as the first President not only to break the trillion-dollar-level for the national debt, but actually to add ANOTHER trillion plus to the debt during his term.

  5. raven says

    Here is the analysis, FWIW: Since we are on terra incognita, chances are no one knows until it ends up in the Supreme court.

    MORGAN STANLEY ECONOMIST: If We Breach The Debt Ceiling, Jack Lew Must Decide Which Law To Break
    Source: Business Insider

    If the Treasury is unwilling to stretch the definition of extraordinary measures, on the day that the Federal Reserve predicts that the Treasury will run out of cash in its account and the Treasury is bound by the debt ceiling, it suspends all payments and awaits instructions from the Treasury. As a result, the government’s principal economic officials will face the prospect of violating one of these three laws:

    1. The Second Liberty Bond Act of 1917 that establishes the debt ceiling;

    2. The Federal Reserve Act that prohibits the Fed from lending directly to the Treasury; or,

    3. The 14th Amendment of the Constitution that holds that the debt of the United States government, lawfully issued, will not be questioned.

    They have to break a law. At the end of the day, officials will avoid violating the Constitution by indicating that they have been given inconsistent instructions and are obeying the one with the most important precedent.

    Read more: http:// http://www.businessinsider. com/morgan-stanley-economist-if-we-breach-the-debt-ceiling-jack-lew-must-decide-which-law-to-break-2013-10

  6. sigurd jorsalfar says

    When it comes to repayment of the bonds themselves, i.e. ‘default on the debt’, that’s not really the major problem here. The Fed can buy up bonds as they become due so that when default on a bond occurs, it will be the Fed that is the injured party. The government will just owe the unpaid interest to itself. I think the bond market is the least of concerns.

    The real problem is all those other federal payments that can’t be met once the ceiling is reached. But of course we will only hear about how bad this is for the bond market, not for everyone else.

    I agree with Jack Balkin. I don’t see how the idea that the (existing) federal debt shall not be questioned can be tortured into the idea that the president can lift the debt ceiling without congressional approval and incur new federal debt.

    Of course the president now starts wars without congressional approval, in spite of the constitutional provision that that power belongs to congress, so I see no reason to get terribly upset were he to violate the constitution and order the Treasury to incur more debt. But it would nevertheless be a violation of the US constitution.

    There’s always the Platinum Coin, my preferred solution. But Obama will never go for that one because it makes it too obvious just how the fiat money system really works. His post-presidential income depends on him maintaining the illusion that the bond market controls the purse strings.

    I’ve also heard mooted the idea of the premium bond, whereby a bond that has a face value of say $1000 would be sold for say $10,000 dollars with the $9,000 difference being made up by a very high interest rate on the bond. I don’t much care for this idea because it’s more complicated than the platinum coin, perpetuates the myth that the bond market is necessary for government to spend, is endorsed by people who think the platinum coin idea is ‘crazy’ but a more complicated rube goldberg bond is sane, and because I have doubts that the face value of the bond is all that matters instead of the price actually paid.

  7. raven says

    There is no question that the Tea Parties hostage taking has done some damage to the USA.

    The question is how much?

    The Chinese hold 1.3 trillion USD and the Japanese 1.1 trillion USD of US treasuries. If we defaulted, it would be a disaster for them.

    Reports are, the Chinese are now wondering why they have all those US bonds. Reports are, some Wall Street firms have been dumping their US treasury bonds.

    If people don’t want to buy questionable bonds, denominated in what is becoming the North American Peso, interest rates have to rise. And that means the debt service on our 16.7 trillion dollar debt goes up. A lot. It can cost a lot to save a few bucks on national health care plans.

  8. raven says

    The interest on the US debt, isn’t much. It’s 6% of our budget, ca. 220 billion a year.

    If we hit the debt ceiling, in theory we could just pay the bond holders and cut somewhere else.

    1. People who know say that isn’t possible. It’s all done by computers and we can’t reprogram the computers to do that very fast. The US sends out something like 100 million checks a month ( or day, I can’t remember which).

    2. I found that argument persuasive. For a few hours. Now I don’t see it.

    3. We could do it. Computers do what we tell them to do. I can believe it would take a long time, months at least. But so what? It would still be possible eventually.

    4. We would have to cut back elsewhere to pay the bond holders and keep spending balanced with cash flow. That would end up being Social Security, Medicare, the military, and discretionary programs. Say an across the board 20% cut. I doubt that will be too popular with the American people but hey, they elected the Tea Party morons that produced this crisis. Be careful what you ask for, you just might get it.

  9. busterggi says

    Can Obama Unilaterally Lift the Debt Ceiling?

    Isn’t that kinda like asking if there’s a bottle of Scotch too heavy for Boehner to lift?

  10. lynxreign says

    But, if Obama were to go to the Supreme Court and ask for the Debt Ceiling to be ruled unconstitutional, then he has all the cover he needs. If they rule his way, the debt ceiling is raised and the hostage taking tool is forever gone. If they rule against him, it places all the blame squarely on the Republicans as Obama can say he tried everything he could.

  11. khms says

    Seems to me what that article really says is that the debt limit is unconstitutional. Of course, getting the Supreme Court to recognize that would be tricky …

  12. typecaster says

    But dammit, I wanna see Obama hold up a Trillion-Dollar platinum coin honoring Ronnie Reagan as the first President not only to break the trillion-dollar-level for the national debt, but actually to add ANOTHER trillion plus to the debt during his term.

    Just a couple of nits. First, Ronnie did break a trillion dollars in debt, but wasn’t the first to do so. In constant dollars, the debt at the end of World War II was higher than it is now, and the Eisenhower era tax rates were that high because we were paying down that debt. We’d gotten it under a trillion when Ronnie decided to ramp it up again. Second, he didn’t just add another trillion in his term. He presided over the debt hitting one,two, and three trillion dollars, and was well on his way to a fourth when he left office. Bush 41 was in office when the four-trillion mark was passed.

  13. says

    Though it could also be that Obama might do this but doesn’t want to signal to the Republicans that he would do it, since that would give them no reason at all to lift the debt ceiling, knowing that he will prevent the worst outcome and give them a line of attack on him at the same time.

    This. The worst thing Obama could do right now is reveal what his plans are if/when the debt ceiling is breached. Because if he has a way of mitigating or delaying the damage, that just gives Republicans cover for causing it. They’ve already been hard at work declaring that a debt default would be no big deal, so that they can attack Obama for either exaggerating the consequences if they’re not bad, or for causing them if they are (precisely what they did with the Shutdown: It’s just a “slimdown” and all the negative things were done by Obama on purpose). This is what you get when a major political party has turned into a literal terrorist organization.

  14. Michael Heath says

    RandomFactor:

    But dammit, I wanna see Obama hold up a Trillion-Dollar platinum coin honoring Ronnie Reagan as the first President not only to break the trillion-dollar-level for the national debt, but actually to add ANOTHER trillion plus to the debt during his term.

    typecaster writes:

    Just a couple of nits. First, Ronnie did break a trillion dollars in debt, but wasn’t the first to do so. In constant dollars, the debt at the end of World War II was higher than it is now, and the Eisenhower era tax rates were that high because we were paying down that debt. We’d gotten it under a trillion when Ronnie decided to ramp it up again. Second, he didn’t just add another trillion in his term. He presided over the debt hitting one,two, and three trillion dollars, and was well on his way to a fourth when he left office. Bush 41 was in office when the four-trillion mark was passed.

    The creation of debt is frequently used as a method to optimize growth rates, not just by government, but almost large public corporations and other business entities. So noting the increase of debt in no way informs us on whether the creation of debt was either prudent or reckless fiscal policy.

    For example, the U.S. enjoyed some of its greatest growth rates in the modern era soon after fiscal policy agreed to by Democrats in Congress and President Reagan led to significant increases in debt. So many liberals seem to forget the former as if President Reagan controlled the budget when in fact he was a partner with Congress.

    Now there’s a solid argument that the debt created in the 1980s was sub-optimally spent and invested or just too much; I’m not claiming this period’s debt creation was all prudent fiscal policy just like I don’t agree with some components of the current structural deficit (paying off the Iraq War) while fully supporting the stimulus in 2009-2011 (which should soon disappear as a component). My point is it’s not helpful merely pointing to 1980s debt, attributing it solely to President Reagan, and proclaiming victory because Reagan also [supposedly] failed. It ignores Congress and the nuanced explanation needed to properly report success and failure within a sufficiently nuanced framework given the very complex fiscal and monetary challenges of the time.

  15. poxyhowzes says

    We need scrip!! issued by any Federally Chartered Bank on whatever terms that bank chooses. We’ve had scrip before!

    We need wooden nickels!! beloved of Chambers of Commerce everywhere. We’ve had wooden nickels before!

    We need Bitcoins!! We have them now!

    We need “free and unlimited coinage of silver and gold.” We’ve tried to have that before, let’s try again!

    We need to have sales and purchases based on commodities. States once used tobacco as a means of exchange for decades while “real” money was short. Bring back the good times! (1 Maizedollar = 3 Soybits)

    We need to be able to sell our votes in a regulated market. The market already exists, let’s regulate it and tax it!

    We need to expropriate private property for the public good! The Supremes have already said that any “taking” by the Gubbmint is ok, so let’s have the Gubbmint issue a coin worth “1 Kansan acre” with a Gubbmint-published list of equivalences between Kansan acres, Idaho acres, North Carolina acres, etc.

    — pH

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