Saturday, June 25, 2011

Is there a Constitutional alternative to default?

Obama might have the ability to exercise a Constitutional nuclear option and instruct the Treasury to sell bonds and meet government obligations even if Congress fails to raise the debt ceiling.  How?  Some Constitutional scholars and journalists say he could invoke the provisions of little known Section 4 of the 14th Amendment.  It reads in part:

Section 4. The validity of the public debt of the United States, authorized by law… shall not be questioned.

Garrett Epps is a former reporter for The Washington Post and legal scholar.  He teaches courses in constitutional law at the University of Baltimore.  In an article that appeared in The Atlantic in April, Epps says Obama could go before the American people and explain that the Constitution explicitly requires him, under his duty to "take care that the laws be faithfully executed," to meet and pay all debts of the United States.  He could argue that Section 4 of the 14th Amendment made it clear “that both the monies our nation owes to bondholders, and the sums promised in legislation to those receiving pensions set by law from the federal government, must be paid regardless of the political whims of the current congressional majority. All obligations that the nation has undertaken by drawing on its credit must at all times be rendered current.”  He could then announce that he was ordering Secretary of the Treasury Timothy Geithner to immediately begin issuing binding debt instruments on the world market sufficient to cover all the current obligations of the United States government, even in default of Congressional action to meet those obligations.

Default avoided.

See Epps article here: 

Bruce Bartlett, Bruce Bartlett, a columnist for The Fiscal Times  writing on the blog Capital Gains and Games has proposed that Obama do the same thing in case Congress does not agree to raise the debt ceiling.
See here:  

So would this be legal?  And, would it be politically smart for Obama?  Jonathan Zasloff at offers these thoughts:

The only Supreme Court case law on it concerned whether government could renege on debts it made (no), and thus whether it applies to non-Civil War debts (yes).

So what’s the argument here?  Recall that if there a conflict between statutes, the standard method of resolution is the “last-in-time” rule, i.e. whichever statute was passed more recently wins.  The argument is that if Congress approves appropriations after the enactment of a debt ceiling, then it is unconstitutional to refuse to spend money for those appropriations.  And the Treasury can’t issue T-bills and then refuse to make good on them.  Those are decent arguments, although hardly sure-fire winners.  The weakest link in the chain is entitlements, in other words, Medicare and Social Security.  Congress enacted those before it enacted the debt ceiling (2006 IIRC), so those might not fall under this interpretation.  As I have argued previously, whatever the merits of the claim, it may be that the only body with the authority to challenge a President making the claim would be a Congressional joint resolution, which would be blocked by Senate Democrats.

But here’s the kicker: whatever the legal merits of the 14th Amendment claim, its political virtues are overwhelming.  Think about it from John Boehner’s perspective: if he agrees to increase the debt ceiling without significant Medicare cuts from Obama, he’s toast.  But if he doesn’t agree to do that, Wall Street and GOP contributors go nuts.  What’s he going to do?

And consider it from Obama’s perspective: if he agrees to significant Medicare cuts, he’s toast.  But if he doesn’t, and the nation defaults, then the economy goes nuts and his re-election is imperiled.

Now, what if Obama does as Epps suggests and just issues more debt?  It’s perfect from his perspective: he doesn’t cave, pleasing his base (and anyone who cares about good policy), while ensuring that there is no default.

But it is also perfect from the Republican leadership’s perspective.  They don’t cave; they don’t increase the debt ceiling; and they can rail against Presidential imperialism, Obama’s socialist-Muslim dictatorship, etc.  And if I am right about standing, no one ever has to bring this to a head because no one has standing to sue!

What about on policy grounds?  That’s also a winner: the United States is the only developed country that requires a legislative vote for this.  No problem there.

Of course, if Obama were to take the action these authors suggest, the Republicans might move for impeachment.  However, it is doubtful that the Senate would actually remove Obama from office even if the House did impeach.   Also, there is the possibility that the matter could be taken to the Supreme Court that could rule against Obama’s interpretation.  However by the time the case got to the court the whole matter of raising the debt ceiling would probably have been worked out.

Is Obama likely to exercise this Constitutional nuclear option?  Who knows, but it might be a way to avoid default if Republicans remain stubborn and no agreement can be reached.

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