Q: [T]he Treasury Department came out with [a report] that said that if the US does not raise the debt ceiling in time that there would be a catastrophic effect on the economy[.]
[Sen. RON JOHNSON (Tea Party Republican Wisconsin]: I think that’s – I think that’s highly irresponsible for the Treasury Department to be issuing those kinds of, I mean scare-mongering reports. The Treasury Department, I think the Secretary of the Treasury, I think the President of the United States ought to be trying to calm the markets, rather than scare them. The President really ought to be leading here. [. . .] There is absolutely no reason at all for this type of government to default even if we don’t increase the debt ceiling. So I think it’s highly irresponsible of this Administration to be doing the type of scare-mongering they’re doing on this issue.
Wall Street is sanguine and thinks the absurdities of Ron Johnson and Ted Yoho do not matter, but I think they may be wrong, and I worry that President Obama is not setting the stage for the actions he may have to take in response.
The issues are practical, default would be catastrophic for the nation, and constitutional, the 14th Amendment prohibits federal government default. But the president's men have taken the unusual (and imo, wrong) position that his hands are tied. I'l explain why they are wrong on the flip.
Last December I wrote a post titled Public debt of the United States shall not be questioned: the 14th Amendment and the debt ceiling (also More on . . .) I argued the Obama Administration was wrong to state it "does not believe that the 14th Amendment of the U.S. Constitution allows the president to ignore the debt ceiling[.] Carney's comments dismissed the possibility that President Barack Obama could have a constitutional option to get around Congress if lawmakers failed to do so." (Reuters)
I argued that the Constitution, Article 1, Section 8 of the Constitution provides:
The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;Article 1 makes clear that it is the Congress that is empowered to "borrow money" and "pay the debts" of the United States. But of course, it is the Executive Branch, through the Treasury Department, that actually executes these functions. Nonetheless, Article 1 makes clear it is the Congress who is empowered to authorize such actions. But this does not end the Constitutional analysis. In 1868, the 14th Amendment to the Constitution was ratified. While the most famous parts of the amendment are well known (the equal protection and due process clauses of Section 1 of the 14th Amendment), Section 4 of the amendment also provided for a constitutional guarantee of the payment of the debt of the United States:
To borrow money on the credit of the United States;
[...] To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures; [...] [Emphasis supplied.]
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. [...]Thus, while Congress has the power to borrow and pay the debt of the United States, Section 4 of the 14th Amendment imposes on the entire government of the United States the obligation to pay debt authorized by law. In the 1935 case Perry v. United States (in dicta to be sure), the Supreme Court stated:
The Fourteenth Amendment, in its fourth section, explicitly declares: "The validity of the public debt of the United States, authorized by law, . . . shall not be questioned." While this provision was undoubtedly inspired by the desire to put beyond question the obligations of the Government issued during the Civil War, its language indicates a broader connotation. We regard it as confirmatory of a fundamental principle, which applies as well to the government bonds in question, and to others duly authorized by the Congress, as to those issued before the Amendment was adopted. Nor can we perceive any reason for not considering the expression "the validity of the public debt" as embracing whatever concerns the integrity of the public obligations.This raises two questions in the current situation regarding the debt ceiling: (1) can the statutory debt ceiling trump the constitutional requirement that U.S. debt be paid? The answer is obvious, no. The Constitution is supreme to all legislative enactments. The second question is is the debt ceiling, on its face, unconstitutional? I would argue no because the existence of a debt ceiling does not, in and of itself, put into question the validity of U.S. debt. However, as applied in the current circumstances, the debt ceiling does appear to be unconstitutional (a quasi "as applied" analysis you might say).
So what if anything can the president do about this? First, let's consider what he is obligated to do under the Constitution. Article II defines the powers and responsibilities of the president. Beyond vesting the executive power in the president, Article II expressly provides that the president "shall take care that the laws be faithfully executed."
The president's duty to take care that the laws be faithfully executed applies both to the Constitution and duly enacted legislation of the Congress.
The Congress has enacted legislation that will likely be in conflict shortly—the debt ceiling and appropriations that will cause the United States to exceed the debt ceiling. The spending authorizations postdate the debt ceiling enactment.
What leeway if any, does the president have with regard to choosing what laws to "faithfully execute" here? In the normal course, the president would have a great deal of flexibility when faced with conflicting legislative directives. However, whether the president wishes to respect the debt ceiling is not the deciding question on this discrete point: the president does not have, in normal circumstances, the power to borrow on behalf of the United States. The Constitution provides that power to the Congress. Thus, looking solely at this discrete issue, the president does not have the practical power to ignore the debt ceiling because he does not have the power to borrow on behalf of the United States.
But what of Section 4 of the 14th Amendment? Doesn't the president have a duty to "faithfully execute" its provisions? Indeed he does. And, should the debt ceiling violate the 14th Amendment, it is my view that the president would have the duty to abide by Section 4 of the 14th Amendment, even if that requires violating the debt ceiling. And if that requires borrowing on behalf of the United States, it is my view that Section 4 of the 14th Amendment would so empower the president.
However, such duty would only arise when the validity of U.S. debt is imperiled, to wit, when it is time to make debt service payments. And before the president could invoke this 14th Amendment power, he would have to, at least in my opinion, exhaust other remedies, including NOT "faithfully executing" the spending appropriations enacted by Congress, and instead insuring that US debt is timely serviced.
But the Obama Administration has said, and there is support for their statements, it does not possess the power to prioritize payments:
Morgan Stanley recently published an FAQ on the debt ceiling, and this was the first question.
In the Event Congress Fails to Raise the Debt Ceiling, Is the Treasury Allowed to Prioritize Its Obligations?
Bottom Line : No, there is no legal basis for the Treasury to prioritize payments. As noted in our previous report, if the debt ceiling is not raised before October 17th, the Treasury will have approximately $30 billion left in the coffers to fulfill its obligations.
If this is the case, then on or around Oct. 17, 2013, Section 4 of the 14th Amendment will be violated. And the president can do nothing about this? I disagree. Last year I wrote:
Practically speaking, many commenters have rightly noted that issuing new debt on the President's 14th Amendment authority would likely be costly, if there is a market at all. It surely is not the first option.The interesting part of that path is that, in my view, the president will be free to prioritize as he sees fit what parts of the government get shut down first. For example, the president could suspend certain Pentagon projects that Congress wants but that the Pentagon says it does not need.
The first option is a rolling government shutdown. (Indeed, this would have to occur in my view before the President could contemplate issuing new debt on his own authority, invoking the 14th Amendment.) [And has already happened in the present crisis.]
It also would basically void the sequestration requirements of the budget deal of August 2011 (requirements the president has basically been ignoring, to no protest from anybody). Congress could not protest that the law was not being followed as they failed to permit the issuance of new debt that is necessary to enact their spending appropriation measures.
It's not apparent to me that anyone would have standing to challenge the president's de facto line item veto in such a case. While the Supreme Court has ruled that the line item veto is unconstitutional, I'm not sure how they could get at this scenario. In Clinton v. New York, the Court ruled the City of New York had standing to challenge the Congressional grant of a line item veto:
They invoked the District Court’s jurisdiction under a section entitled “Expedited Review,” which, among other things, expressly authorizes “any individual adversely affected” to bring a constitutional challenge. §692(a)(1).No such grant of standing is available here. As Lawrence Tribe noted in 2011, there is no "plausible point of entry" for the courts here. On the legal claim itself, the Court stated:
the presidential actions at issue have amended two Acts of Congress by repealing a portion of each. Statutory repeals must conform with Art. I, INS v. Chadha, 462 U.S. 919, 954, but there is no constitutional authorization for the President to amend or repeal. Under the Presentment Clause, after a bill has passed both Houses, but “before it become[s] a Law,” it must be presented to the President, who “shall sign it” if he approves it, but “return it,” i.e., “veto” it, if he does not.Obviously, the exigencies the president will have to engage in should there be a debt ceiling forced government shutdown, on its face, violates the Presentment Clause. The question is what does the Constitution require in this case? After all, at that point in this hypothetical, the validity of the public debt is probably on shaky ground as well.
Could the president, in an effort to avoid violations of the Presentment Clause and Section 4 of the 14th Amendment, argue that he is constitutionally empowered to issue new debt? I think he could.
But in the meantime, the president would have the discretion to direct available spending as he deems best. And if March 2013 rolls around and there is no resolution of the debt ceiling issue, the president may be forced to act. No reason to take that option off the table.
Indeed, October 2013 has rolled around and these options need to be on the table. In yesterday's New York Times, Sean Wilentz wrote:
[A]rguing that the president lacks authority under the amendment to halt a default does not mean the executive lacks any authority in the matter. As Abraham Lincoln well knew, the executive, in times of national crisis, can invoke emergency powers to protect the Constitution.I agree with Professor Wilientz.
Should House Republicans actually precipitate a default and, as expected, financial markets quickly begin to melt down, an emergency would inarguably exist.
In all, the Constitution provides for a two-step solution. First, the president can point out the simple fact that the House Republicans are threatening to act in violation of the Constitution, which would expose the true character of their assault on the government.
Second, 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.