Recently, my friend Marshall Auerback posted an article at New Deal 2.0 about Obama’s coming “teachable moment” when the Republicans try to wring concessions out of the Democrats by refusing to raise the ceiling on the national debt. The post stimulated a lot of good discussion about alternatives Obama might have to shutting down the Government in response.
In this post, I want to raise the question again about what what might happen if the Republicans refuse to raise the debt ceiling, preventing the Federal Government from issuing any more debt, because I think we can get some interesting discussion started here, and perhaps might come up with something that would short-circuit the coming Congress. Here are some considerations from the discussion on Marshall’s post that may prompt that discussion.
In addition to mandating a debt ceiling, Congress also mandates that the Government can’t deficit spend unless it issues debt in one-to-one dollar correspondence. So, if Congress refuses to raise the debt ceiling, the Executive Branch cannot comply with the mandate about issuing debt. Also, it’s the law that the US Government must pay its debt obligations as these fall due, and fulfill the terms of various programs which require expenditures. In fact, as Tom Hickey points out, the 14th Amendment to the Constitution says in part:
“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. . . . ”
So, in this situation, the Executive has numerous legal mandates in conflict, and the President has the duty to faithfully execute the laws. Why, in this situation, can’t the Attorney General argue that Congress’s refusal to lift the debt ceiling has created a constitutional crisis and that it is the interpretation of the Executive Branch that the refusal to raise the debt ceiling negates the legal requirement that the Government must issue debt dollar-for-dollar in order to spend? Why can’t the AG argue, further, that the Government has unlimited constitutional authority and, in some cases, obligations to spend and create fiat money as long as such spending has been previously authorized by Congress, whether or not the debt ceiling is extended?
What if, in line with this interpretation, the Executive Branch orders the continuation of all Federal spending until the constitutional crisis is resolved, and orders the Fed to mark up its accounts in line with its directives, so that spending can continue and Treasury Accounts will have positive balances? What if, meanwhile, the Executive challenges Congress to remove the conflict created by its conflicting mandates through either:
1) Raising the debt ceiling;
2) Ending the constraint that debt must be issued by the Treasury to cover Federal expenditures previously appropriated;
3) Revoking the Federal obligations to spend that are forcing the Executive to exceed the debt limits;
4) Seeking a Supreme Court judgment resolving the conflicts among conflicting Congressional mandates on the Executive?
What would be wrong with something like this? Why should the interpretation be that the US must default on its obligations and shut down the Government? After all, it will probably not even be the explicit will of Congress that any such default occur, but only the will of one or a small number of Senators, who will not let the Congress express its will.
Also, the requirement of the 14th Amendment would seem to justify the incremental re-payment of all debts as they come due without the Government having to issue more debts as currently required by Congress. Why wouldn’t Obama just do this? He doesn’t seem to be shy about grabbing more power for the Executive when it comes to “homeland security,” civil liberties, or privacy. Why not grab some power when it comes to spending money too?
Seriously, the 14th Amendment may be the key, here. We have Congress, by refusing to increase the debt limit, “questioning” the validity of the public debt, and acting unconstitutionally, in allowing their internal rules (filibusters and holds) to prevent a majority vote upholding the integrity of the US debt, as required by the constitution. The Executive, as a constitutional officer, sworn to uphold the it and its guarantee of the debt, would have no choice but to act where Congress will not and spend to re-pay debt.
Beowulf offers an argument about how that may done constitutionally:
”Start dropping coins in the fountain.
1.The Fed buys coins from Tsy at face value.
2. the face value of a coin does not have to equal the value of the coin’s metal content (a dollar coin costs 12 cents to mint, the rest is seigniorage,
3. Seigniorage is booked as revenue, not debt.
4., the Secretary has the authority to mint platinum and coins of any “specifications, designs, varieties, quantities, denominations, and inscriptions” 31 US 5115(k) & 5115(i)(4)(k).
5. TARP bill gave the Fed authority to pay interest on reserves. Instead of pegging the FFR rate by draining excess reserves with bond auctions, the Fed can set the IOR rate at the FFR rate to keep the latter from dropping to zero.”
A neat solution to the debt ceiling problem, perhaps?
Please keep the new ideas and criticism coming. It will be our contribution to solving the coming tea-party induced crisis.