Can Obama Unilaterally Raise the Debt Ceiling, Round 2


President Obama has publicly said that he is very reluctant to invoke 14th Amendment authority to raise the debt ceiling on his own, without congressional approval. And some have argued, as Obama has, that doing so would lead to many lawsuits and other bad results. Hendrik Hertzberg says the president could and should do this:

The President is constitutionally sworn to “take Care that the Laws be faithfully executed,” but if he enforces the debt ceiling, established by one law, he cannot meet obligations that other laws command him to fulfill. Nor can he submit to blackmail, lest the Constitution be informally amended to provide that any law, duly passed by the House and the Senate and signed by the President (and, if challenged, upheld by the Supreme Court), may be effectively voided by the action of one faction of one party in one half of the national legislature. And he absolutely cannot permit default, the consequences of which would be global and catastrophic…

In the end, Obama could have no honorable choice but to invoke the Fourteenth. There is little doubt that he would prevail. The Supreme Court would be unlikely even to consider the matter, since no one would have standing to bring a successful suit: when the government pays its bills, who is damaged? The House Republicans might draw up articles of impeachment, adopt them, and send them to the Senate, where the probability of a conviction would be zero. This would not be a replay of Bill Clinton and the intern. President Clinton was not remotely guilty of high crimes and misdemeanors, but he was guilty of something, and that something was sordid. Yet impeachment was what put Clinton on a glide path to his present pinnacle as a wildly popular statesman. President Obama would be guilty only of saving the nation’s economy, and the world’s.

Emily Bazelon and Eric Posner agree, both on the standing question that would likely avoid a protracted legal fight and on the political outcome.

Legal scholars and historians (including one of us) have been making the argument that Obama does indeed have the power to declare, without Congress, that he’ll pay off the nation’s debt. Our view is that he can cite his inherent emergency powers under the Constitution once financial markets begin to freeze up. Others have noted that the 14th Amendment provides that the “the validity of the public debt … shall not be questioned,” and have argued that while it instructs Congress, not the president, to protect the debt, the president can act if Congress violates its duty.

The White House will keep insisting it doesn’t want to act on its own because doing so would be politically risky. The president would much rather Congress fold. There is always some residual risk from doing something that hasn’t been done before, so we understand the reluctance. But if there’s no deal by the end of next week and financial markets get wobbly, Obama should just go ahead. He is not shy about advancing executive power in other domains. Why not put the country and the world financial markets out of their misery? Wouldn’t the polls reflect support and relief? And wouldn’t the American political system be better off if presidents in future can remove this gun from their own heads?…

But lawsuits that challenge the president’s authority to issue debt would almost certainly go nowhere. Most plaintiffs would not be able to show a personal injury from the issuing of new debt. Lacking legal standing, their cases would be dismissed. Those who got beyond this stage would be blocked by the political question doctrine: Courts would dismiss the suit on the grounds that the controversy over the debt is an inter-branch conflict between the president and Congress that is not for judges to resolve. So if some creditors sell off Treasuries or refuse to buy new debt, the smartest investors—the hedge funds and the sovereign wealth funds—would sweep in to make a killing.

I suspect that President Obama considers this an absolute last resort, to be used only if the bond market grinds to a halt and takes the stock market with it.

Comments

  1. says

    “The White House will keep insisting it doesn’t want to act on its own because doing so would be politically risky.”

    And therein lies my principle complaint against the Obama Administration: the President is a coward who prefers to lead by windsock rather than by moral backbone. If something is deemed “politically risky” he will make a pretty speech or two then drag his feet for as long as he possibly can.

  2. Nihilismus says

    If the President does not invoke the 14th and there are bondholders or other people who are not paid on time, then those people would have standing to sue under the 14th. The courts would probably hold that the debt shall not be questioned, and order the executive branch to pay what is owed.

    So the President can just avoid waiting for the inevitable court orders, and simply have the executive branch continue to pay off its debt as it normally would.

  3. says

    “I suspect that President Obama considers this an absolute last resort, to be used only if the bond market grinds to a halt and takes the stock market with it.”

    Back during Round 1, I was thinking that if this does happen, then Obama should take emergency action. But I can agree with the arguments made then as to why he shouldn’t at anytime before this. Like, don’t do anything tomorrow (unless shit hits the fan that quickly), but if we have a couple of days of a rapid* downward spiral, then I’d think he’d be obligated to act.

    * Apologies for the use of such subjective terms, but I’m really not enough of an expert to even suggest any objective standards by which to measure.

  4. raven says

    There is no question a default on US Treasuries would be catastrophic.

    1. Most Americans hold US bonds whether they know it or not. Money Market funds are full of US Treasuries. If you have cash in an IRA, brokerage account, or 401(K) plan, you own Treasuries.

    Banks I have no idea about. Probably they park short term cash in short term US Treasuries but I’m just guessing here.

    2. The Chinese hold 1.3 trillion USD and the Japanese 1.1 trillion USD. You don’t bankrupt your close ally and largest trading partner.

    3. Which means, the 14.4th amendment might cover just continuing to pay off the bondholders no matter what the christofascists try to do to the USA.

  5. says

    The republicans absolutely would impeach Obama if he invoked the14th Amendment. If it weren’t for the fact that it would tie up our already dysfunctional Congress for months, I’d say bring it. It would only backfire on them worse than the shutdown has.

    But I agree that it should be Obama’s tactic of last resort because it is unchartered waters and would create a political cluster fuck that we can’t afford right now. It’s not like the 90s where times were good and we could all enjoy a good circus. We still have an anemic economy and an impeachment would probably cause the markets to panic.

  6. raven says

    David Zervos:

    Last week I reprinted a commentary from early 2011 that discussed the importance of Section 4 of the 14th Amendment to US Constitution in the great debate on the debt ceiling. In that note I stated that my view remains the same today as it has for the last few years: a default on a US Treasury security would be a violation of Section 4. If the POTUS instructs the US Treasury to default on a UST payment, he will be violating the Constitution. And, if the Federal Reserve does not pay a maturing UST coupon or principal payment from the Treasury general account, even if there is a zero balance, it is a violation of the Constitution.

    David Zervos is some sort of Wall Street guy.

    According to him, Obama doesn’t have to invoke the 14th amendment. He has to follow it. Which means paying the bondholders.

    And if the Tea Party tries to stop the payments, then, they are violating the 14th amendment.

    No idea whether Zervos is correct or not but it sounds plausible. Read it yourself and make up your own mind.

    If I was Obama, I’d just do it and take it to the Supreme Court if necessary. Why not, at that point, what does he have to lose?

  7. Michael Heath says

    Could President Obama proactively file something in the federal court for them to determine the legality of his acting without Congress?

    Hendrik Hertzberg:

    President Clinton was not remotely guilty of high crimes and misdemeanors, but he was guilty of something, and that something was sordid.

    Ah, the rare example of a liberal meme which denies reality. While I agree President Clinton wasn’t guilty of impeachable offenses, the articles of impeachment and District Court Judge Susan Wright’s civil contempt of court were not sordid. They were instead charges of perjury, obstruction of justice, abuse of power (where none of these convictions held in the Senate) and in the federal court case, his unwillingness to truthfully testify in the Paula Jones hearing. contempt of court. Cite: http://goo.gl/Q0aqBr

    Hertzberg dishonestly conflates the nuclear-grade hypocrisy of House Republicans seeking to remove a president with the actual misdeeds by President Clinton which were indictable offenses; though in a court and not in Congress unless all national level politicians are going to predominately stop lying. Hypocrisy given that while Clinton clearly lied, he was and is like nearly all Democrats, far more honest than any Republican. (That’s based on my own personal observations. I have no empirical data for this observation but am comfortable holding it given those observations are countless, broadly based demographically speaking, with very few observations that swing the other way.)

  8. tmscott says

    Gregory@1

    With respect, I think that you may have misread the president. I suspect rather that he is a very astute politician, and that he is waiting for some combination of events such as described by posts #2 and #3. Litigation by third parties of standing, and a generally recognized national crisis, not just dire predictions, would give him the public legitimacy he’s looking for.

    Tom

  9. DaveL says

    But is it actually true that we don’t have the revenues to cover all legally mandatory spending? According to the CBO, that wasn’t true as recently as 2011.

    If revenues exist to cover all legally mandatory spending, including interest on the debt, then the question turns from one about a credit default and its effect on markets to the effect of the sudden virtual annihilation of the military and homeland security budgets.

  10. sigurd jorsalfar says

    I think the idea that bondholders like China could go bankrupt if the US defaults is exaggerated. Most likely the Fed will offer to buy any bonds that are about to mature and take the default risk onto itself. Interest payments on bonds may stop but that’s not going to bankrupt China, and not likely to bankrupt any other bond holders either. There will still be a secondary market for bonds as there will be plenty of people willing to buy (at a discount of course) in the belief that the matter will be resolved and missed interest payments will be made good eventually.

    The real problem is all the other payments that the federal government is obligated to make or wants to make that will now cease. That is going to bring on a recession, which we may already be in.

  11. raven says

    The republicans absolutely would impeach Obama if he invoked the14th Amendment.

    They might. Hard to say what crazy people will do. But I wouldn’t say it is 100% likely.

    The Supreme Court says what is constitutional and what isn’t. It’s their job. If Obama asks for an opinion from the Supreme Court and they say, yeah, you have to follow the 14th, then they don’t have grounds for impeachment.

    That won’t stop them but at that point, an impeachment just looks like a bunch of drunk loons pretending to be adults. Hard to say how much damage the GOP can do to itself before it dies but that might do it.

    But I agree that it should be Obama’s tactic of last resort because it is unchartered waters and would create a political cluster fuck that we can’t afford right now.

    The 14th trades a political crisis for a constitutional crisis. If it has to happen, then it happens. Obama can’t hand over the USA to a group of barbarians supported by 24% of the US population.

  12. raven says

    To put all this in perspective, the current crisis is entirely human made. By the christofascists of the Tea Party.

    1. Things were going along fine until recently. Unemployment is down, housing up, stock market hit a record high, economy growing at 2%, deficits half what they were a few years ago. The war in Iraq is over, Afghanistan is winding down, al Qaeda is on the run, bin Laden is dead.

    We were slowly recovering from the Bush Catastrophe.

    2. The Tea Party threw all that under a bus for no obvious reason. The ACA is a minor tweak to our existing system, passed legally and democratically, and just an excuse for them to throw a temper tantrum.

    The Tea Party would destroy the USA rather than see Obama succeed.

    It remains to be seen whether the voters will remember this at the next elections in 2014. They might.

  13. says

    @tmscott – #8 Like I said, he leads by windsock: President Obama will not take a single step until he has tested the winds and convinced himself that he can come out ahead. This has been his tactic on EVERYTHING, from DOMA and DADT to closing Gitmo to withdrawing troops from Iraq and Afghanistan to the Keystone Pipeline to prosecuting the war criminals of the previous administration. It long ago ceased to be mere “caution.”

  14. freemage says

    A slight tweak–the President would not be ‘raising the debt ceiling’. He’d be ignoring it, on the grounds that the law establishing such a thing is unconstitutional. And frankly, I’ve got no problem with that–the debt ceiling is a completely arbitrary line, established with no particular tie to the size or health of the economy, just to establish a talking-point for conservatives and give a smidge of cover to Democrats in conservative areas.

  15. abb3w says

    @11, Raven

    The Supreme Court says what is constitutional and what isn’t. It’s their job. If Obama asks for an opinion from the Supreme Court and they say, yeah, you have to follow the 14th, then they don’t have grounds for impeachment.

    Impeachment is a considered a non-justiciable “political question”, per (Walter) Nixon v US. If majority of the House decides to impeach someone for sneezing, and can get two-thirds of the Senate to go along with the gag, the only question the SCOTUS might address is whether or not the person had indeed held one of the executive or judicial offices of the Federal government which is subject to impeachment.

    That said, there’s about as much chance of getting two-thirds of the Senate to go along with impeachment for invoking the 14th to avoid default as impeachment for sneezing. Politics aside, the legal Catch-22 of contradictory laws allows a practically textbook example of conditions for a necessity defense.

  16. says

    @sigurd jorsalfar #10 – The function of a foreign reserve is to “borrow” the stability of another country’s economy to stabilize your country’s economy. Right now, US dollars make up about 60% of China’s foreign reserves. That means that about 60% of the yuan’s stability comes from the US economy. If the US economy begins to shudder, and the dollar falls, it will drag 60% of the Chinese economy down with it. If China cannot stabilize its own economy, the ripple effect of two major economic powers shuddering will be catastrophic.

    While much of China’s reserve is in Treasury securities, about a third is in semi-government notes, such as the bonds that were issued to prop up Fannie Mae and Freddie Mac after the mortgage crisis. Those are ordinary bonds, not Treasury bonds, and the United States is under no obligation to prop them up. If we default on these, and they become worthless, China will go boom and much of the world will follow.

    As for the secondary market, keep in mind that Treasury securities have a very low rate of interest. Their investment value is in stability and guarantee of payment, not in a high rate of return. If that guarantee is revoked, the bonds will become much less attractive to buyers. Sellers will begin to flood the market, trying to get out of US bonds, supply will skyrocket as demand is dropping… it will likely be a blood bath.

    If the value drops too low, the Treasury will begin buying to prop them up, sure, but look at the cost. The Treasury is forced to hand out hundreds of millions, potentially hundreds of billions, to buy back Treasury notes: where will that money come from? The US is carrying that bond debt for a reason: what about the programs funded by that borrowed money, what happens to those? Again, it will be a blood bath.

  17. colnago80 says

    Re Michael Heath @ #7

    What the esteemed Heath fails to consider is that the entire investigation of Clinton was a crock of shit from the get go. All the so-called rimes he was accused of occurred before he became president (receiving blow jobs in the Oval Office hardly rates as a crime). The alleged perjury committed before the grand jury was in response to the blow job accusation which itself was not illegal (I believe that the Supreme Court decision relative to the case in Texas made all laws against sodomy unenforceable). What we had was a political vendetta by a rogue special prosecutor, who, as Vincent Bugliosi stated, should himself have been indited for, among other things wasting taxpayer’s money.

  18. sigurd jorsalfar says

    Gregory

    I said the Fed will buy up bonds as they mature, not the Treasury. The Treasury will default but the Fed will take the loss, not China. Where will the money to buy these bonds come from? From the Fed. Whenever the Fed buys a bond it simply debits the bondholder’s bond account and credits the bondholder’s checking account. The money doesn’t come from anywhere. So in sum, I don’t think there will be any default at all on maturing bonds that will affect China or any one other than the Fed because at the time of actual default the Fed will likely be the owner of the bond.

    The damage will be the loss of interest payments and other payments that the US Treasury will not be allowed to make once the debt ceiling is reached. China and Japan do not rely on those payments at all so they will not be affected. I agree that that is going to harm the economy and likely will have knock on effects in China because the lack of US dollars entering the economy will mean reduced demand for Chinese goods, but that’s not going to ‘bankrupt’ China.

  19. sigurd jorsalfar says

    I also meant to add that I don’t really know what you mean by ‘stability’ and ‘stabilize’. You are using those terms in a very vague sense. Could you elaborate?

  20. says

    Obama may have the law on his side, but what of the mob? What happens when Obama acts in a way that they see, goaded on by the likes of Cruz and Goober, er, Gohmert, as proof of dictatorial rule?

    The prophesies of Obama sweeping aside congress to do as he pleases are realized and end times are neigh!

    Sure, the crazy can only hurt the GOP and they’ll dissolve like a caterpillar before reentering the chambers as a new moth. But that means nothing to anybody that gets really hurt.

    This isn’t an argument for Obama to do nothing. That would be an incredibly stupid reason; that some nut may go off on a crazy spree. I think Obama may have to take action. I’m just saying that this is no game. This is no joke. The fuckers in the House are playing with real lives and it’s not likely to end well if they don’t get their shit together.

  21. John Kruger says

    Should Obama really wait until things begin to fall apart? If the US credit rating gets downgraded, it is going to cost billions operating the country for the foreseeable future. The US only came close to defaulting due to the debt ceiling once before, during the 3-mile island disaster, and the senate approved a budget so close to the deadline that the government could not act fast enough to pay all its obligations. That snafu made our credit rating take a hit that has never been recovered, costing us 12 billion in borrowing costs ever since. What is a large scale default going to do to the US credit rating? Just getting too close is enough to damage it. I would hope he would act before any damage is done, not after irreparable damage has already occurred.

  22. raven says

    This is no joke. The fuckers in the House are playing with real lives and it’s not likely to end well if they don’t get their shit together.

    True.

    It’s a few billion lives.

    The Chinese and Japanese hold 2.4 trillion USD in Treasuries. If we default, they are going to get hurt pretty badly. The Japanese economy has been stuck in neutral for decades. It wouldn’t take much of a kick to knock it over. The Chinese are running like mad just to keep ahead of their problems. If they hit a wall, they will go down too.

    The dollar is the world’s reserve currency, something that benefits us greatly. The new North American Peso isn’t going to replace it.

    PS One of the lives the Tea Party is mauling is…mine. And my 401(K) plan. Not that this is unusual. It’s mauling the lives of every citizen in the USA, all 317 million of us.

  23. says

    @sigurd jorsalfar #19 – On a global scale, yes, it all comes out to a bookkeeping scheme and no actual paper changes hands. But if the dollar starts to tank because our fiat currency no longer has the world’s trust in its value, and large holders like China and Japan start selling off as the US buys up, the books themselves will collapse under the strain.

    It will take time before the juggernaut falls. We may even be able to get some braces up in time and stabilize things for long enough that stability can reassert itself. Much more likely, though, the Tea Party will be crowing on Friday that there was no disaster, and will dig in its heels: the braces will not go up, and catastrophe will become inevitable.

  24. Michael Heath says

    colnago80 writes:

    What the esteemed Heath fails to consider is that the entire investigation of Clinton was a crock of shit from the get go.

    As nearly always, you misrepresent what I actually wrote and argue. I assume you know you’re lying given you didn’t blockquote what I wrote prior to responding.

  25. wscott says

    Most plaintiffs would not be able to show a personal injury from the issuing of new debt.

    Financial injury, no. But *if* you thought the President was in fact usurping Congress’ authority (I don’t think he would be, but that’s what the Court would decide), then I would think would give the Legislative Branch standing. And after all, I believe it only take 4 Justices to grant cert, right?

    @ Michael Heath #7: Exactly. I myself was a Federal employee at the time of the Clinton hearings, and if I’d perjured myself in front of a Grand Jury – yes, even on a “personal matter” – I would’ve been fired and probably charged criminally. So yeah, it was a little galling to see my boss held to a lower standard.

    while Clinton clearly lied, he was and is like nearly all Democrats, far more honest than any Republican.

    I don’t disagree, but again there’s a difference between political lying and actual felony perjury. Michelle Bachman and her ilk may be serial liars, but they’ve mostly managed to avoid doing so while under oath in a court of law.

    The alleged perjury committed before the grand jury was in response to the blow job accusation which itself was not illegal

    @ colnago80: Blow jobs may not be illegal, but sexual harassment is. And soliciting sex from an employee you have power over is absolutely sexual harassment. Many a CEO, college President, etc has been fired for exactly that. So I found it odd that so many feminists are still so willing to give Clinton a pass on this.

    But even then, Clinton probably would’ve been fine if he’d had the balls to just admit to it. But he lied about it under oath, which is a felony offense. Of course the overall investigation was started by politically-motivated BS. But Clinton still *chose* to perjure himself. The fact that he did so over something so trivial is NOT a point in his favor.

    Clinton’s sins may pale compared to the Dubya years that followed. But that doesn’t make it right.

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