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Tuesday, July 5, 2011

The 14th Amendment vs. The Debt Ceiling

“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.”
— Section four, 14 Amendment, U.S. Constitution
Does the "debt ceiling" violate the Fourteenth Amendment, and therefore is unconstitutional? The debate will get more heated as the August deadline approaches to increase the ceiling. Perhaps the U.S. Supreme Court will need to make the final call. Here are both sides of the question, plus more of the "debt ceiling" debate.

Bruce Bartlett / The Fiscal Times:
The Debt Limit Option President Obama Can Use --
The vast majority of those commenting on raising the federal debt limit are certain that Congress will act in time to forestall a debt default, which would occur if the Treasury lacked sufficient cash to pay interest due that day or to redeem maturing securities. The smart money says that Congress could not possibly be so stupid as to permit a default and will raise the debt limit just in time. Americans would likely agree, however, that some members of Congress really are that stupid. But here’s the good news: An arcane provision in the U.S. Constitution gives the president the edge... 
Furthermore, it’s worth remembering that the debt limit is statutory law, which is trumped by the Constitution which has a little known provision that relates to this issue. Section 4 of the 14th Amendment says, “The validity of the public debt of the United States…shall not be questioned.” This could easily justify the sort of extraordinary presidential action to avoid default that I am suggesting.

Some will raise a concern that potential buyers of Treasury securities may be scared off by a fear that bonds sold over the debt limit may not be backed by the full faith and credit of the United States. However, given that the vast bulk of Treasury securities are 3-month bills that will turn over many, many times before this issue ever reaches the Supreme Court, it is doubtful than anyone will be concerned about that. And the Federal Reserve could assure investors that it will always be a buyer for such securities.

People smarter than I am tell me that the Treasury has an almost infinite ability to avoid a debt crisis. I hope they are right...
Trader's Crucible: Debt Ceiling Unconstitutional -- This idea has legs....
USA Today: Obama and the debt: A 14th amendment solution?
Care2: Debt Ceiling Fight Setting Up Constitutional Crisis
FireDogLake: Cornyn on 14th Amendment, Section 4: “That’s Crazy Talk”
Examiner: Could President Obama pursue a ‘nuclear option’ on the debt ceiling?
TheAtlanticWire: The Case Against Ignoring Congress on the Debt Ceiling
HuffingtonPost: Chuck Schumer: 14th Amendment Option 'Certainly Worth Exploring'
Michael McConnell / AdvancingAFreeSociety.org:
The Debt Ceiling Is Certainly Not “Unconstitutional” --
As we approach the debt ceiling sometime in August, with no agreement seemingly in reach, there is wild talk in Washington to the effect that the debt ceiling violates Section Four of the Fourteenth Amendment. The theory is bunk.

Section Four reads: “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.” According to some wishful thinkers, because it would be unconstitutional to default on the public debt, the Treasury must have authority to borrow any additional funds necessary to pay principal and interest on the existing debt as they become due. This means President Obama can ignore the debt ceiling and issue more debt, for the purpose of paying off past loans, without getting approval from Congress. If true, this would take the pressure off the President to agree to spending reductions in exchange for an increase in the limit.

Legislative control over incurring new debt is a fundamental aspect of separation of powers, going back to Parliament’s curtailment of the royal prerogative of borrowing in the wake of the Glorious Revolution of 1688. Article I, Section 8, Clause 2 empowers Congress, and only Congress, “to borrow money on the credit of the United States.” Without congressional authorization, the President may no more borrow money than he could make new criminal laws, declare war, or enact a new spending program. The “debt ceiling” is simply the limit Congress has imposed on how much money the country may borrow. The executive branch cannot constitutionally borrow a dime in excess of this amount...
More debate about the debt ceiling.

David Brooks / New York Times:
The Mother of All No-Brainers \ The Republicans have changed American politics since they took control of the House of Representatives. They have put spending restraint and debt reduction at the top of the national agenda. They have sparked a discussion on entitlement reform. They have turned a bill to raise the debt limit into an opportunity to put the U.S. on a stable fiscal course...

First Read / msnbc.com:  First Thoughts: The Hangover
Paul Waldman / TAPPED:   It's Not a Faction, It's the Party
Steve Benen / Washington Monthly:   What a ‘normal’ GOP might do
Democracy in America:   The great deal they cannot take
Wall Street Journal:   Deficit Talks Focus on Taxes
Rob Long / Ricochet Conversation Feed:   David Brooks and the No Brainer
BooMan / Booman Tribune:   Wanker of the Day: David Brooks
Andy Sullivan / Reuters:   Debt limit deal not out of reach
Don Boudreaux / Cafe Hayek:   Ye Olde Question for Mister Brooks