If the president just did it, then the only recourse of Congress seems to be to impeach him.
But it seems like the president could argue that the debt ceiling is unconstitutional in light of the court's interpretation of the 14th Amendment. Likely that SCOTUS would side with the president.
Beowulf?
Read it at CNBC NetNet
Obama Can Raise the Debt Ceiling on His Own
by John Carney | Senior Editor
35 comments:
Here we go again. We've been all through this last year discussin all the many options he has. Carney misses the point completely. Obama BELIEVES the debt is a problem. His political advisers BELIEVE it is politically expedient to be a debt hawk. He's not going to just, "raise the debt ceiling." He doesn't have cujones like that. He never did.
I remember reading about this during the last go around. As I recall, Clinton mentioned he would have used this option since you don't get to vote on the budget twice. Because, duh.
Here is all I know. I will begrudgingly accept that the Obama administration was caught with their pants down last time. There will always be the predictable political posturing around raising the debt ceiling, but no one ever thought Congress would cut spending by 44% overnight and turn the US into a deadbeat. And that's exactly what they wanted to happen.
Obama better have a plan to shut this down before it escalates to the level it did last year. Because hell hath no fury like a woman with CAPS LOCK.
Basically agree, Mike, but I don't think it's Obama's timidity. That call to get Bin Laden was very ballsy, especially after the fiascoes that Carter and Clinton got involved by OK'ing risky ops. I think that Obama reads the public as wanting debt reduction and polling seem to indicate that is the case. But if came down to the last minute before default, Obama would most likely bite the bullet and step in.
He really would have do something, and the clean way is just direct the Treasury to pay the debt per the 14th Amendment and say that this was his conclusion as a constitutional lawyer and that they had received confirming opinions from a number of legal sources rather than fooling around with platinum coins or consols.
Congress wouldn't like but there's not much they could do, and I think that the majority public would love it, especially Wall Street. The opposition could come away from this damaged on the Street, and I suspect that they know it since they would be told in no uncertain terms.
Article I, Section 8 has not been amended, last time I checked. So why is this even being discussed as an option?
@ Nathan Vanderhoofven
14th amendment. Congress has already appropriated the funds, which have been disbursed, that payment would be defaulted on. You don't get to vote twice on the same thing.
I don't get that Tom. A lot of the payments haven't been disbursed. Since Congress has the power of the purse, it seems to me that they are perfectly within their crackpot, tightwad, austerity-mongering rights to say, "We hereby authorize you spend $X" and also to say "But ... stop at some amount less than $X if going beyond $X would require you to issue debt in excess of $Y."
Mike has this right. There is no politically viable workaround or shortcut. Obama is not going to issue consols. He is not going to mint a humongous-denomination coin. Since the power the executive branch has to do those things has been delegated to it by Congress, any whiff of such actions will probably be shut down by Congress anyway. The basic constraint is that in this country Congress gets to say what the Treasury can spend and what it can't spend.
I don't see how the 14th amendment is involved. Enforcing the debt ceiling doesn't mean causing a default. It just means forcing the Treasury to stop spending and stop issuing more debt. If the ceiling is enforced, Geithner will continue servicing existing debt and will stop disbursing other funds that haven't been spent yet.
The problem is that Obama has firmly embedded himself in the sound finance camp. Unless he makes the decision to change his tune and take a different doctrine to the public, he will once again have no political wiggle room to get out of the box he has buried himself in. People keep looking for some kind of trick escape hatch. But what he really needs to do is tell the public something like this: "We need to run a deficit. Moving toward surplus means doing the same things the Euro-idiots across the pond are doing, which means destroying our economy, throwing more people out of work and going into another butt-kicking recession. The republicans are morons."
Another problem is that the Dems are punching with their hands tied behind their backs because prominent mainstream Democratic Party economists have all joined the "responsible", sound finance, deficit dove camp.
The basic problem is this: how does Obama find a compelling, popular and politically powerful principle for getting out of the debt ceiling bind if he himself continues to tell the public that the debt is a huge problem and that we are "out of money"? There are no tricks that will work.
Dan, the debt isn't issued until Treasury needs the Fed to transfer reserves into its account to clear its payments. When the the Treasury has obligations that it cannot meet without getting reserves from the Fed, which necessitates tsy issuance, since the Treasury cannot run an overdraft, the debt ceiling kicks in and if the reserves are not forthcoming then the payments don't get made. The first payments that need to be made are interest payments would puts the US into default on its obligations. While a temporary default is possible, the payments eventually have to be made under the 14th Amendment. Therefore, it is logical for the President to claim that he is going ahead and authorizing payments himself under the 14th Amendment instead of waiting for the court to order it be done. This is what Clinton said he would do. Obama should take that advice and tell Congress to buzz off, just like he did with Libya.
"The trick is for Obama to "discover" that it is possible for him to do. And that would put an end forever to both the faux debt ceiling and "running out of money" meme.
Dan, I think you put your finger on it. Obama just agrees that we have to reduce the debt. I look for him to make another Grand Bargain, or what he calls a grand bargain.
If he wants to do something else he would likely start preparing the ground work.
On the nature of deficits he has shown zero understanding that our debt is anything other than like a household.
Blame the other guys for any trouble or debt downgrade this causes. The republicans don't want that on them, so there could be some late hyperventilating by all involved.
Tom, when they went through this last time, it was my understanding that there would be no default. The Treasury is receiving tax revenues throughout the year. As long as it always has a balance sufficient to meet debt service payments and actual obligations, then the US does not default. Most other Congressionally authorized payments from the Treasury are not obligations, so if the Treasury doesn't make them it is not defaulting.
Dan, if that were the case, there would be no problem. There comes a time that the Treasury Sec can't juggle things any longer and the interest has to be paid and the reserves are not available to clear without raising the ceiling, since tsys are needed to get the reserves into the Treasury acct. at the Fed.
14th Amendment, 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. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
See Perry v. US (1935) for SCOTUS interpretation.
Wikipedia on the 14th Amendment, Validity of public debt: In Perry v. United States (1935), the Supreme Court ruled that under Section 4 voiding a United States government bond "went beyond the congressional power."[48]
The United States debt-ceiling crisis in 2011 raised the question of what powers Section 4 gives to the President. Legal analyst Jeffrey Rosen has argued that Section 4 gives the President unilateral authority to raise or ignore the national debt ceiling, and that if challenged the Supreme Court would likely rule in favor of expanded executive power or dismiss the case altogether for lack of standing.[49] Erwin Chemerinsky, professor and dean at University of California, Irvine School of Law, has argued that not even in a "dire financial emergency" could the President raise the debt ceiling as "there is no reasonable way to interpret the Constitution that [allows him to do so]".[50] The issue of what effect Section 4 has regarding the debt ceiling remains unsettled.[51]
We hereby authorize you spend $X" and also to say "But ... stop at some amount less than $X if going beyond $X would require you to issue debt in excess of $Y."
You're mixing apples and oranges.
An Authorization is the field trip permission slip, while an Appropriation is the check to pay for the excursion. Once Congress has appropriated the money, Tsy isn't given discretion to disburse the funds, its ordered to disburse the funds per appropriation specifications.
Carney's issue came up last summer. If there's no way to avoid breaking either the debt limit statute or the 14th Amendment, there's no question that the Constitution trumps any statute.
The trouble is you can only use a necessity defense (in any area of the law) when your back is against the wall. If there is an simple, lawful solution that you've ignored, courts aren't going to bless your unlawful solution. If a building collapses, and a doctor has to amputate a leg sans anasthetic to free a pinned victims, no one will him accuse of malpractice... unless it turns out the doc declined a firefighter's repeated suggestions to first try freeing the victim with the Jaws of Life. See the distinction? :o)
In the Youngstown Steel case, President Truman (defending his Korean War-era seizure of steel plants) lost the Supreme Court once they realized he'd slept on his rights under the Defense Production Act to lawfully seize the steel plants.
So I think Tsy has a weak hand if they defend breaking the debt limit by claiming it was either that or break the 14th Amendment. Chief Justice Roberts will simply ask, "And coin seigniorage doesn't work why?"
http://thinkprogress.org/economy/2010/03/24/173195/roberts-nlrb
Not surprisingly I agree with beo. Also, I've given the political argument for Obama to use here: http://mikenormaneconomics.blogspot.com/search?q=The+Definitive
There's no question about the legality of using PPCS at this point. And if O uses it then Congress won't be able to shut it down easily. Remember, Congress won't act with one voice on this. The Ds won't support the Rs to shut down PPCS. At most if there are some turncoats, then the President can veto. But even if a miracle happened and Congress managed an override of the veto, then the President would still have 10 days before any new law took effect. So, he could mint a coin during that time large enough to make the whole issue a dead letter. A $60 T coin pays all the debt as it falls due, and would take care of deficit spending for 15 - 20 years which should be more than enough time to change the political situation.
Btw, I discussed the possibility that the President can use the 14th amendment back in 2010 and referenced both Tom and Beo in the analysis: http://www.correntewire.com/constitutional_crisis_over_debt_ceiling_does_government_have_shut_down
Mike you may be right about how Obama will act. But you also may be wrong. None of us know how he's going to act when push comes to shove. Our social science isn't that good. It's going to be a high pressure situation and increasingly chaotic as the debt limit threatens and depending on the timing. The ideas about the 14th, PPCS, and consols are now out there. If the problem hits before the election, then O's giving into the Rs will put Romney into the White House. I think Obama will get creative rather than have that happen.
Oh, yes. This piece also discusses debt ceiling options: http://www.correntewire.com/avoiding_a_debt_ceiling_election_sellout
and comes off references to posts by Mike, and and comments by Beo on consols.
Thanks Joe. We really should focus on platinum coins. Consols are neat to think about but way too complicated to explain. This thread over at MR ends with me having to explain the bane of 1L Property class, the rule against perpetuities. and these are finance guys! I can't imagine breaking it down for civilians.
http://monetaryrealism.com/the-trillion-dollar-coin-and-the-debt-ceiling/
As Mike Sankowski puts it, "My mom can understand making a high value coin". Everyone knows where dimes and quarters come from, so the idea of the Mint-issued money is easy to wrap their heads around. What's more, a wide array of economists endorsed using jumbo coins last summer (including Krugman, DeLong, Cowen and Sumner).
The biggest academic get was probably Yale law professor Jack Balkin. A renowned legal scholar saying its a legal option ("A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination.") made it safe for the economists to endorse something that's definitely out of the box.
Beowulf, what is the ratio of authorized to appropriated spending in Treasury's annual expenditures? Can't the Treasury meet all of its actual obligations without issuing more debt? And if it can, then can't the argument be made that the 14th amendment actually ties the Treasury Secretary's hands, and requires him to meet those obligations by eliminating all discretionary spending first?
But in any case, the argument I think you are making is that once some spending has been mandated via an appropriation it becomes a debt, covered by the 14th amendment. But why should a court regard that to be the case? The appropriation amounts to a spending order from Congress, and is therefore an order that Congress can rescind at any time, either directly by de-authorizing the spending, or indirectly by imposing funding constraints on the Treasury.
My feeling is that there is no alternative but to go to war with Congress on macroeconomic policy grounds, and on the battlefield of public opinion, and to win that war. I'm frustrated that Obama refuses to fight that war and has conceded the choicest policy territory and high ground to the opponents.
I simply can't see Obama ever using the coin seignorage approach. Mike Sankowski's mom and a lot of other moms and dads might be able to understand a high-valued coin to some degree. But the problem is that they will both understand it and be horrified by it at the same time. Imagine the spectacle of Tim Geithner or some Treasury functionary driving over to the Fed to deliver a massive-denomination coin to be deposited in the Treasury account. As far as the political impact of the spectacle goes, Barack Obama might as well show up with a wheelbarrow full of Zimbabwe bucks. It's not the same thing but people will perceive it in the same way. And it is ludicrously demeaning for the world's most powerful government to conduct its business this way.
beowulf: "Chief Justice Roberts will simply ask, "And coin seigniorage doesn't work why?"
That would be a victory, too, but at a great price.
Beo, I like Mike's comment. Btw, I think Balkin picked up on this from Jamie Galbraith. He was circulating the idea in the background. I think it was our efforts that got to Jamie.
Dan,
"The appropriation amounts to a spending order from Congress, and is therefore an order that Congress can rescind at any time, either directly by de-authorizing the spending, or indirectly by imposing funding constraints on the Treasury."
The spending order post-dates the debt ceiling legislation, so without an explicit clause in the dc law saying that it still applies whether or not Congress later appropriates spending requiring that deficits that exceed it, those appropriations can be viewed as repealing the ceiling.
A defense saying that the intent of Congress to maintain the ceiling is clear without an explicit statement isn't reasonable, because, while it's reasonable to assume that a majority of the the Republicans in Congress may have had that intent, it's not reasonable to assume that any of the Democrats intended that.
Anyway, my overall point here is that this admits of conflicting and complex interpretations, and if the Court doesn't want the US to default on its debts, it has plenty of legal grounds to invalidate the debt ceiling.
Dan,
"I simply can't see Obama ever using the coin seignorage approach. Mike Sankowski's mom and a lot of other moms and dads might be able to understand a high-valued coin to some degree. But the problem is that they will both understand it and be horrified by it at the same time. Imagine the spectacle of Tim Geithner or some Treasury functionary driving over to the Fed to deliver a massive-denomination coin to be deposited in the Treasury account. As far as the political impact of the spectacle goes, Barack Obama might as well show up with a wheelbarrow full of Zimbabwe bucks. It's not the same thing but people will perceive it in the same way. And it is ludicrously demeaning for the world's most powerful government to conduct its business this way."
I really think this is a way over-blown view of what would happen. Again, I've outlined the political approach to doing a $30 T coin here: http://mikenormaneconomics.blogspot.com/search?q=The+Definitive
Other than just your gut feel that this wouldn't work, what are your reasons for disagreeing with it? Also, for the sake of argument, even assuming that a $30 T coin is just too much to defend, why should we expect a hysterical reaction to a move by the President to mint a $500 B coin that would generate enough seigniorage to get the Government through until the new Congress took office?
What could possibly be the objection to that to avoid the chaos of a Government shutdown? It's a "no-brainer."
Tom,
"beowulf: "Chief Justice Roberts will simply ask, "And coin seigniorage doesn't work why?"
That would be a victory, too, but at a great price."
What would be the price? Let's say the SC rules that the 14th doesn't apply because PPCS could have been used. So, the President, that very day, says "thanks" for affirming that PPCS is perfectly legal. I've just ordered the mint to deposit a $60 T coin at the Fed. The debt ceiling is now a dead letter. Now what's the reason why Congress why Congress won't pass Medicare for All and create 2.6 Million new jobs? After all, the money's there and I'm paying off $6.2 T of intragovernmental debt this week.
Dan, you want to see the MMT program passed in full include the JG? Then get that $60T coin minted and shut down the deficit hawks for the next 20 years, at least.
"What would be the price?"
Assuming SCOTUS doesn't get involved until after the default.
The spending order post-dates the debt ceiling legislation, so without an explicit clause in the dc law saying that it still applies whether or not Congress later appropriates spending requiring that deficits that exceed it, those appropriations can be viewed as repealing the ceiling.
I like that argument a lot better than the 14th amendment argument, Joe. He could just say that Congress has issued inconsistent orders and that he has decided the most recent order takes precedence. However, he can only get to this legal point, as I understand it, once the orders are actually in conflict. So long as the debt ceiling only requires withholding discretionary spending, there is no conflict.
Tom, I'm assuming:
1. That the President issues new debt and goes over the ceiling. It's a fait accompli at that point.
2. The House Republicans sue for violation of the ceiling, and ask the Court for an injunction stopping further debt issuance until the debt subject to the limit is under the ceiling again
3. The Senate doesn't support them. So, the House Republicans go alone to the Court
Here are some possible results:
4. The Court could refuse to rule saying the House alone lacks standing. This is a good possibility, since the Court doesn't like to inject into conflicts between the other two branches when the situation is muddy.
5. The Court could agree to hear the case; but is unlikely to issue an injunction because doing so would cause a default in violation of section 4 of the 14th.
6. The Court could decide in favor of the President saying that the 14th Amendment prohibits a default and that the Congress gave the President no choice, because it passed both the debt ceiling and also appropriated what it knew would be deficit spending thus putting the Executive in an impossible position.
7. The Court could decide for the President saying that the legislation appropriating deficit spending that would exceed the limit, implicitly repealed the debt ceiling.
8. The Court could decide for the House Republicans saying that the President had no right to exceed the debt ceiling because he had other alternatives to either defaulting or exceeding the ceiling. The Court will hear about the PPCS and consols alternatives for sure. They're out there now and are being discussed enough that as the debt ceiling is approached, Jack Balkin and other "experts" will start making the major cable outlets explaining the alternatives. The Court could even direct the President to stop issuing debt subject to the limit and use either consols or PPCS or both to implement appropriated deficit spending.
9. If the Court rules in favor of the Republicans, and orders the President to stop issuing debt, then the President would be forced to use consuls or PPCS to avoid a default, and his friends from Wall Street would make absolutely sure he knows of the alternatives.
However, I don't see the Court creating such a crisis. They'll be under tremendous pressure from everyone, including the Street to put the Tea Party Republicans in their place, and when it comes to a choice between the Tea Party and the Street, all the R justices will choose the Street except possibly Thomas. And all the D justices will rule against the House Republicans too, because they won't want to risk a default.
10. The Court could rule in favor of the House Republicans, and the President may decide to call for immediate raise or repeal of the Debt ceiling, saying that he must shut down the Government if Congress won't act. The maximum danger of this outcome is if the Court rules this way before the election, which is very unlikely. If it rules in favor of the House after the election, then the President, whether he wins or loses the election won't gain anything from risking default, and so he will turn to PPCS or consols.
That's my take.
"However, he can only get to this legal point, as I understand it, once the orders are actually in conflict. So long as the debt ceiling only requires withholding discretionary spending, there is no conflict."
I'm not sure the term "discretionary spending" has any legal standing here. It's really a question of whether Congress has appropriated spending. An appropriation is a mandate. Once it's done it's the Executive's duty to spend what Congress has legislated. If the spending was appropriated after the debt ceiling was legislated, then I think the repeal argument is still reasonable.
Having said that, of course, the law is what the Court says it is, barring a constitutional amendment, and even then, the Court will interpret intent and meaning.
Treasury will put payments for discretionary spending on the bak burner in favor of paying interest to avoid default. That's pretty much a given, I would say.
According to a Forbes article:
"While the Supreme Court has yet to rule on what the President’s power might be when it comes to usurping the powers of Congress so as to avoid the catastrophe of defaulting on our credit obligations, the highest court in the land has ruled on whether or not the executive branch can pick and choose which bills it will pay and which bills they will not. According to SCOTUS, the President does not have the power to make these choices."
http://www.forbes.com/sites/rickungar/2011/07/29/can-obama-really-use-the-14th-amendment-to-raise-the-debt-limit/
And if Forbes isn't the authority on this issue, we can use it to connect dots that don't exist. "Economics with gossip" is always more interesting anyway. :0)
Tom, I don't know if they will. Depends on what they calculate the politics is. If they pay interest on the debt instruments and don't pay for SS and Medicare, then they're in a whole mess of political trouble. Also, as I said earlier, I don't think the term "discretionary" has any legal status. It's a BS term. The President can say that he will perform all spending appropriated by Congress as that spending comes due. And then when he runs out of money he can just keep issuing debt and make the case to the public daring the House Republicans to try to take it to the SC. Then the possibilities I sketched out above become relevant.
The potential downside of the failure of Congress to raise the debt ceiling has much bigger downside for the GOP, who are obstructing it. The president is likely to play this for what it is worth politically, seeming to negotiate in good faith and putting the GOP leadership in the hands of the unruly Tea Party faction.
Hi Trixie, I agree that Forbes and Rick Ungar aren't authorities on any of this.
But more importantly, this:
"While the Supreme Court has yet to rule on what the President’s power might be when it comes to usurping the powers of Congress so as to avoid the catastrophe of defaulting on our credit obligations, the highest court in the land has ruled on whether or not the executive branch can pick and choose which bills it will pay and which bills they will not. According to SCOTUS, the President does not have the power to make these choices"
actually supports my argument.
I'm claiming that from the President's point of view, there's no discretionary spending. It's all mandatory, except for a bit of short-term fooling around. So, when the TGA account is about to go negative, the President is then in a box. The Treasury has to get some money or he will violate the spending mandates.
He can violate the debt ceiling by holding an auction, he can use PPCS, and/or he can use consols. If he uses one or both of the last two, then he can avoid the conflict between the debt ceiling legislation and his legislated appropriation mandates. If he refuses to use these, then he must violate one of the two mandates. He's best off violating the debt ceiling because he can appeal to section 4 of the 14th, or he can claim that the appropriations repealed the debt ceiling, or he can claim that the House Republicans lack standing. A possibility that Ungar points to in his article.
Btw, even though I think the Ungar article is pretty good, especially on standing, his language fails to make the distinction between authorizations by Congress, and appropriations.
Authorizations don't give the President authority to spend. Appropriations are mandates to spend given certain conditions. Ungar should have made that distinction in his writing, and Forbes shouldn't have had someone writing that article who doesn't appear to know the difference or to recognize its importance in terms of the President's obligations.
"The potential downside of the failure of Congress to raise the debt ceiling has much bigger downside for the GOP, who are obstructing it. The president is likely to play this for what it is worth politically, seeming to negotiate in good faith and putting the GOP leadership in the hands of the unruly Tea Party faction."
The political downside for the GOP is before the election. But the President has some downside for himself too. Romney will charge him with not being able to lead, because he didn't avoid the crisis, and he'll deny responsibility for what the tea party in Congress is doing. And if the public learns by then that Obama could avoid the crisis in the ways outlined above, then if it does get to the point where the Government is on the point of shutting down then O will get some of the blame.
I absolutely agree Joe. The GOP mantra: not raising the debt ceiling was going to limit Obama's "blank check" agenda. (Rolls eyes). As Michele Bachman had a huge voice in this last year...it's going to be "tough love" as the president is going to have to "prioritize" payments. All that needed to happen was payment on interest to avoid default. Everyone cheered, and the polls proved it. And in their effort to "limit" Obama, they would have essentially anointed him King of the Mountain, armed with a Gucci purse. RAWR.
I would have started with cutting all defense vendor payments, followed by social safety net disbursements (but only for the Red states), and for my dismount... Congressional salaries and related benefits. THAT will teach him. And it would have been worth it for all the synchronized pants-wetting. Degree of difficulty: 9.8
The irony is that the Tea Party REALLY didn't see THAT coming. Because they don't even have a rudimentary understanding of how the government works.
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