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07 July 2011

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eakens

Perhaps this is why the War Powers act provides Congress with a check on the President, particularly when wars are started/continued using debt.

KimViner

Col - FWIW, I called DFAS and asked what happens to retiree pay if the debt limit was not raised. The person on the phone had no clue, took my name and said that a supervisor would call me back by the 1st of July with an answer. No call as of the 7th. Wonder what will happen?

Grimgrin

From what I've read, the argument is that the budget, by not appropriating revenue for all the expenditures, implicitly creates new US public debt; that failure to raise the debt ceiling would be an implicit repudiation of the validity of the public debt of the United States, creating an immediate national crisis and that the executive has always been given broad latitude to act in times of national crisis.

It would mark a radical expansion of executive power, as it'd move them outside the "security" sphere, and it would probably provoke an immediate court challenge, but I'm not sure it's beyond the pale as far as arguments for executive power go.

It's all idle speculation though, since Obama doesn't have anything close to the stomach he'd need for that kind of action.

Jane

Congress ordered the expenditure of more money than the US took in. To refuse to pay those debts is to repudiate them.

That Congress was given the power to enforce did not remove the President's power to see that the laws -- including Section 4 -- are properly executed.

Patrick Lang

Jane & Grimgrin

It is exactly that kind of legal and consitutional matter that I would like t osee discussed here. pl

zanzibar

Geithner, Bernanke and the other Wall Street water carriers are as usual fear mongering about "debt default" and the consequent sovereign credit catastrophe. Not much different than the fear mongering of Paulson, Geithner and Bernanke when the markets focused on the insolvency of Wall Street in 2008.

If Congress does not raise the debt limit and if the interpretation of the Constitution is that the federal debt has seniority of claims, then there cannot be a default as government receipts must first be used to pay interest on the debt and principal on maturing debt securities.

Now that would mean in one sense that the federal government must immediately have a balanced budget. So Congress would need to immediately approve a new spending and tax plan that balance.

But in our contemporary financial environment it could mean anything. The Fed may unilaterally decide to just print up a bunch of money and provide it to the government with no collateral. Bernanke did something similar in 2008/2009 where they bought up Bear Stearns securities and guaranteed Wall Street liabilities with no explicit authorization from Congress. Not much different than Trichet deciding that collateral rules do not apply to Portugese debt. Geithner could come up with some faux accounting rules and other gimmicks and Congress could go with it. Wall Street is always there to come up with all kinds of "end runs" with swaps, repos, special purpose vehicles and derivatives of all kinds - all of course for a fee!

In the major economies of the world today - US, Europe and China - we have a financial theater of the absurd.

Patrick Lang

Kimviner

Dunno, not looking forward to it. pl

Patrick Lang

Jane

"ordered" This is the past tense. As I understand it there is no question of repudiating PAST debt. pl

Patrick Lang

Grimgrin

Is there a budget for the coming fiscal year? pl

Fred

Hopefully Geithner would stop paying congressional salaries (along with their staffs') - in fact he should stop paying them now -to 'prevent' breaching the debt ceiling! Alternatively he could argue that the debt in excess of current debt limits are required in order for him to faithfully execute the appropriations bills- he could then sell on the open market bonds that are not backed by the 'full faith and credit' of the US Government and see who (if anyone) buys them.

Personally in this 'age of terror' I'd like to see them argue that all that financial manipulation was a kind of 'insurrection' against the United States and thus all the bonds held by 'those people' are null and void. That sure seems better to me than betraying our veterans and social security recipients.

Marina

There is no Federal budget for FY12. POTUS submitted President's budget request in February as usual, then nullified it in April when he gave a speech outlining a new budget framework. House passed Ryan's budget. Senate defeated POTUS Feb budget request 0-97 and defeated House Ryan budget. So there is no budget for the coming fiscal year.

Sounds like we'll have another year of continuing resolutions.

Mark Logan


I believe that section 4 is clear, the validity of the public debt shall not be called into question. Given the context of the times, Lincoln's "greenbacks", I think the reason translates into our situation today. It was prudent to prevent the nations debt (incurred by the war) from being used exactly the way Congress is attempting to use it now, a means of extortion over matters that should be resolved by negotiation.

They gave the power to enforce it to Congress as well in section 5, but I discount that. I do not think it was intended to preclude a President from enforcing the mandate in section four, it was to make clear that a Congress could stop a President from ordering the Treasury not to sell bonds, and thereby abuse it himself. Seems to me the ability to extort in this manner falls easier into a Presidents hands than it does the hands of Congress, a single man being generally more susceptible to fanaticism and/or insanity than a whole crowd might be.



Patrick Lang

Mark Logan

Your argument ignores the legislative history. There was no fear that the Republican dominated Congress would pressure the country to do its will. The fear was that the seceded states as they were re-admitted would demand repudiation of the US debt for their suppression. pl

bth

A couple of observations in passing.

First, Congress has the authority to tax, but I am unaware of anything in the constitution about setting debt limits. To my recollection debt ceilings became an expedient developed in the 20th century as the federal budget became complicated. I don't think there is anything that says that the federal government cannot borrow to meet shortfalls. Please correct me if I am wrong.

Second, it used to be that Congress set the budget, as well as authorized and appropriated. But if I recall somewhere in the 20th century the executive took the role of proposing a budget and sending it to Congress. Is there anything that prevents the Congress from authorizing and appropriating its own budget devoid of the President who at best could veto? If the House really wanted a 2008 level authorization and appropriation for 2012, isn't it within its power to pass only that amount for 2012?

Third, one might consider a scenario whereby the Fed bought government bonds off the street, paid freshly printed cash for them which got pumped into the economy and then issued more debt to meet previous obligations. It would of course be monetarily inflationary, but with houses deflated and the labor market as it is and with China holding the paper, well one wonders what if? Where does wealth flow to in such a scenario? Over priced gold and risky Euros?

Fourth, so what happens if the rating agencies downgrade our debt in July as the crisis evolves? Would that bring the political clowns to the table to act as Americans instead of petty party hacks? One wonders.

Fifth, there is a point where the public votes to throw the incumbents out regardless of party affiliation. Are we there yet?

It is going to make for great theater in coming weeks. ... Send in the clowns.

GulfCoastPirate

As one who thinks the president should invoke the 14th Amendment given the duplicity of Congress I can think of a couple of ways this could play out.

1. Congress authorized all expenditures. For those expenditures over and above revenues it knows full well the executive branch will sell bonds to raise capital to pay those expenditures. The idea of a debt limit is silly. The president, if necessary, should order that bonds continue to be sold to pay off all debts Congress has previously authorized. If Congress wants to cut spending they should do so through the normal budgetary process but once they authorize the spending they should have no say in whether or not the executive raises whatever additional funds he needs to pay for their expenditures. That he will do so is inherent when they vote for deficits.

2. I read an article this week (can't remember where but I'll try to find it again} in which the Fed could do something similar to what another poster mentions above. IIRC the Fed holds approximately 3.7 trillion in government bonds. They could unilaterally declare any portion of those bonds paid and tear them up which would mean they no longer count against the debt limit. Everything could then go on as before.

This is a joke of a 'crisis'. Congress is doing nothing more than holding the financial system hostage in an effort to get the executive to impose spending cuts they don't have the will to impose themselves. Obama should simply act as if they don't exist and/or tell them to stop acting like a bunch of 3 year olds throwing a tantrum if they don't get their way. Would any of you allow your children to act like this?

Nancy K

I find the republicans in congress disgusing. They had no problems with raising the debt ceiling 7 times with Bush but now with a democrat as president they have found the fiscal faith. Give me a break. They care nothing about the American people, they care about themselves and the special interests that support them. If they don't raise the ceiling, I hope Obama goes over their heads.

Richard Armstrong

Congress will raise the debt ceiling. I do not know if they will raise it before the Republican's attempts at brinksmanship begin to negatively affect the financial markets but I do know that they will inevitably increase the debt ceiling.

Article II requires the President to take care that the laws be faithfully executed, including those passed by Congress which created the debts and section 4 of the 14th Amendment. Until the debt ceiling is increased the President and the Treasury must do what they can in order to fulfill that requirement and to avoid defaulting on the public debt.

If the efforts of the President and Treasury fail to stave off default then surely the affect on the financial markets will be disastrous. Such a financial emergency might provide to the President other courses of action in the form of inherent emergency powers.

If the financial markets implode and the President exercises what he believes are inherent emergency powers then eventually the Congress will be forced to either retroactively authorize those actions or take Congressional action (censure, impeachment, etc.) against the President.

The current debt ceiling "crisis" will never reach the point where the President will be forced to take extraordinary steps. Congressional Republicans are reprising Cleavon Little holding a gun to his own head in Blazing Saddles. We all knew his threat was empty and that he would never shoot himself.

Mark Logan

Col, mea culpa, my comment was a very imperfect rendering of these thoughts on the history of the 14th, as listed here.

http://balkin.blogspot.com/2011/06/legislative-history-of-section-four-of.html

This still does not give the power to just print money to the President, so I'm off beam.

Grimgrin

There's a budget for the current fiscal year. Once we get past Sep 30th, and the budget runs out, the argument becomes harder to make.

Rather than relying on the 14th Amendment, you have to rely entirely on the theory that the president is allowed to act as he sees fit to in times of national crisis.

bth: I was under the impression that the fed issued debt by printing money. And your scenario might help stave off a panic in the markets, but the Fed couldn't fund government operations under such a scheme, without subverting Congress' appropriations power.

Also:

http://www.washingtonpost.com/business/economy/in-debt-talks-obama-offers-social-security-cuts/2011/07/06/gIQA2sFO1H_story.html

Obama is slitting his own throat.

Bill H.

Saying that you cannot pay a debt is not the same as "questioning the validity" of the debt. It very often happens that a debtor admits owing money but defaults due to inability to pay. Geithner is utterly iditotic to suggest that he does not know the difference, and to suggest that Obama would add a constitutional crisis on top of a financial one.


Amileoj

In my view this is not a 14th Amendment question, but rather an Article 2 question.

The Executive in this instance is faced with faithfully executing contradictory laws: the Congressional appropriations for this fiscal year, and the debt limit. Given the requirement that spending in excess of revenue be matched by bond issues, there is no way for the Executive to avoid violating Article 2's 'faithfully execute' provision.

Fortunately, there is a way out, which as it happens would also be far more beneficial for our demand-starved economy: the Fed can use its emergency powers to cover the Treasury's overdraft. That way the spending can continue, without any additional debt being issued.

This too would likely violate some statute or other. But it would be by far the lesser of evils, from the point of view of the public interest. It would in fact allow us to avoid a contractionary reduction in the planned deficit--just about the worst thing the government can do to an economy in a time of slack demand.

Would this be inflationary? Well the Fed's use of the same emergency power on Wall Street's behalf, though it greatly boosted the quantity of reserves in the banking system, was evidently not in the least inflationary. The quantity theory of money has been tested as thoroughly as one might like by experience, and proven false.

So I see no practical reason why that same emergency Fed power could not be used again, and with far greater justice, on the people's behalf. The government's Constitutionally-granted currency monopoly is supposed, after all, to serve the general welfare of the American people, not the narrow interests of a global financial elite.

New Orleans

If you reject the notion that the president can ignore the debt limit via the Fourteenth Amendment, you would seem to endorse the president usurping the congressional power of appropriation. By that, I mean Congress has already ordered the money to be spent, but it has failed to provide the necessary money, either through taxes or bonds. That forces the president to decide which appropriations to honor and which to ignore, I think.

Congress diddles while the president is left to decide which is the more desirable way to violate the Constitution.

William R. Cumming

Agree with Zanzibar!

walrus

While the legal ramifications are beyond me, the practical details are not.

1) You cannot have any form of economic recovery if everyone is sitting on their hands waiting for someone else to spend money to create economic activity. The federal budget should be creating a deficit right now.

I am heartily sick of these (unprintable) characters who try to state that Keynesian economics doesn't work. The time to raise taxes and kill of debt is when the economy is booming, not when it is almost dead. Such actions also prevent the economy from overheating.

If the debt ceiling is not lifted, the misery of the jobless is going to be intense and the effect on their children is going to haunt you for the next Thirty years. I note in passing that the jobless don't have much Internet access and, unlike the great depression, no one seems to be documenting their plight.

2) On a military note, Professor Sir Michael Howard drew attention in 1983 to the need for prosperity and sound economic management in order to fund the defence forces that are the ultimate source of national power and influence. If this cannot be achieved without the Hoi Polloi accepting the pain and self denial involved, then the military forces are ultimately useless because they will not receive popular support. This is the Third element of Clausewitz's trinity.

To put it another way, the Pentagon and its backers have a good reason for wanting sound economic management.

3) While I agree totally with Col. Langs position regarding the construction of the United States out of the smaller sovereign states who rightly guard their prerogatives, (which is not unlike Australia), I would offer the opinion that the costs of running Fifty State Legislatures and Fifty different sets of both criminal and civil laws is not inconsiderable.

It is therefore obvious that any activity to harmonise law and regulation between the States is going to reduce transaction costs and the only losers in such activity will be the legions of lawyers and public servants engaged in such pointless and harmful activity as trying to collect sales taxes on visiting interstate aircraft.

P.S. Why does the Federal Government have to do the harmonisation? Can't the states take the lead themselves with no loss of sovereignty?

bth

So if the news of the day is to be believed, the 14th amendment option is off the table.

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