The 14th Amendment clearly prevents default on the public debt and trumps any statutes that purport to limit payment of the outstanding debt, including paying principal and interest and financing those by issuing new debt if necessary.
The harder question is all other government spending. Appropriations may be an obligation, but it's difficult to argue they are public debt for purposes of the 14th Amendment.
That does not mean all other government spending must stop. There are two sets of laws that are in conflict, appropriations and the debt ceiling. The govt can not comply with both. The president may therefore comply with the appropriations, doing all things necessary to raise the money, including issuing debt, so long as no more is spent than existing mandatory appropriations and so long as the public debt has priority.
It might be argued that the president was violating the law by spending and issuing debt, but to fail to do so would also violate the law. Given that any course violates the law, the president may do the right thing. He is obligated under the constitution to take care that laws are faithfully executed. In this case, he will have to use his best judgment as to which laws must be followed. Again, in the face of contradictory statutes, he must violate some law and comply with other. Absent statutory guidance, there is no alternative.
Other solutions include raising money from the Fed. Lend gold. Strike at $1 trillion coin and sell it to the Fed. Ask the Fed to tear up the treasury bonds it holds. Given the chaos that would result from a default or the cessation of govt spending, the Fed is obligated under its dual mandate to help the treasury continue making payments.
Bruce:
I share with you your belief that there will be no debt limit agreement by the due date unless Obama (and this is not impossible!) makes excessive concessions to the rethuglicans.
As you note, the tea nuts have no desire to address debt issues, merely an ill-informed and anarchistic desire to bring the house down, consequences be damned.
Therefore:
Option 1 (gold purchase) merely defers the day of reckoning, and in fact maintains the illusion (delusion) that the debt limit issue is inconsequential.
Option 1 (14th amendment) though no doubt on firm ground legally is too subtle for the country as a whole and the tea nuts in particular. this will merely allow the rethugs to further damn Obama as an anti-constitutionalist (to go along with his socialist marxist europeanist kenyanist not-very-white-ist tendencies). It may solve the problem in a mechanistic way, but will further embolden the loony party.
It is time for Obama to take a stand, dare the rethugs to bring the govt to a halt and make clear that they own the consequences. Tough medicine for the country (and the global economy?) but how else is the US going to awaken from this nightmare of anarchistic fecklessness from one of the two major parties?
So if Obama ignores the debt ceiling, what then? It seems like it would let the GOP off the hook. They could keep their principles, complain about Obama, not have the economy collapse and eat cake.
However, there is still the budget. How would Obama stiffing Congress on the Debt Ceiling affect budget negotiations?
The policies that the Dems and the GOP would pursue cannot be reconciled. Splitting the difference will not give us good, coherent, fiscal policy.
Why is Congress not worried about unemployment? In November of 2012, the army of the unemployed will punish all incumbents.
You can be sure that the house of reps is worried about unemployment. Their worst case scenario is a drop in unemployment, which is why they are holding the line so rigorously against anything that could potentially improve the situation......
Hi, again Bruce, this post brings more questions. I've been reading that book "The Great Treasury Raid," since you mentioned it in that Forbes article. In that article you mentioned how Kennedy sent a letter to congress telling them to close certain loopholes alongside his big tax cut. Of course, this was ignored. By 1979 the effective tax rate for the top 1% was 37% (see source here http://lanekenworthy.net/2008/01/14/taxes-at-the-top/), and went down to about 25% in 1981. When the 1981 tax cut was put together, were Kennedy's loophole requests known about and factored into the bill (were some outlets closed), or were the same flaws that the '64 bill had in it in the '81 bill too? If they were in there, was there a reason for doing so, and why would it have helped?
By the way, a comment on your previous post said the following: Congress consistently approved less spending that Reagan requested in his budget proposals. So the notion that Reagan was suckered into agreeing to the 1982 tax increases based on the idea that spending would be cut is ridiculous. Spending *was* cut below the level Reagan wanted.
This runs contrary to what you said in your book: Is he right or wrong? If you are right, could you verify it with a source other than Reagan (always good to rely on a neutral party)? If not, could you point me in the direction of somewhere that I could verify it for myself? I'm not calling you a liar, I'm just confused about all of this and wish to learn. Thank you.
Thanks.
P.S. Why didn't Reagan ever raise taxes enough to fully close his deficits?
Thanks again.
All that needs to happen is to have Biden or Pelosi read the pertinent section of the 14th to Eric Cantor, he can do an Emily Litella, and we can move on.
Are you kidding about the Tea Party respecting the Constitution? It is nothing more than a GOP front, much in parallel with Communist front groups that served the Soviet Union by claiming to be "Mothers for Peace" or "Students for Justice" (I have made up those names) that pretended to be spontaneous movements here but followed the Soviet line closely. The Tea Party, dupes for Karl Rove (whose methods are much like a Commie apparatchik) and his ilk, prefers ruin of the American economy to the re-election of President Obama.
Besides, these Tea Party types call themselves "10th Amendment citizens", somehow conveniently ignoring the 13th, 14th, and 15th Amendments.
The President has a selling job to do, but if anyone can sell it, he can. That's what we get with a "Professor of Constitutional Law" as President instead of some hollow demagogue.
"To my mind, this means that the very existence of the debt limit is unconstitutional because it calls into question the validity of the debt."
I think you are referring to this part:
"The high level of generality recognizes that instead of referring to payment of debts, the Clause bans government action at any time that affects the validity of debt instruments". Moreover, there is no such thing as a valid debt that will nonetheless not be honored; a debt cannot be called "valid" if existing laws will cause default on it."
Which basically means that the public debt is a senior claim on all revenues that the federal government takes in. Meaning that any tax law or government expenditure authorized by Congress that attempts to abrogate the rights of bondholders is unconstitutional.
This also means that the U. S. Treasury has the right to decide which payments to make (debt service payments) and which not to make (government payrolls).
There is absolutely no mention of the debt limit in the paragraph that you reference. The only thing the 14th amendment dictates is that debt service payments take precedent over all other federal policies (taxes and expenditures).
Bruce,
You once again make an assertion that you haven't substantiated in the slightest, even to offer any substantive refutation of apparently strong arguments to the contrary.
As in previous posts of yours, assert that failure to raise the debt limit, presumably within some time frame you have in mind, is likely to result in default on Treasury debt. You write above:
I have serious doubt that Congress will raise the debt limit in time to prevent the Treasury from running out of cash to pay its bills, including interest and repayments on the debt.
You never did provide any substantive refutation of the point made here based on data published by The Economist http://capitalgainsandgames.com/blog/bruce-bartlett/2194/dopiest-constit...
All you did was offer up a very weak, vague response that Treasury finances vary day-to-day, and provide a link to data in reports in a form that was almost completely unusuable to fact-check your claim unless one were to spend countless hours pulling a couple of data points individually from a large number of separate reports.
Given that you persist with this assertion, one would hope you are basing it on some actual data that you can offer your readers. So where is your data?? As anyone can see at the Economist links at the comment to which I link above, on a monthly basis revenues far, far exceed interest payments (which are all that we must expend to avoid default on Treasuries, since principal can be rolled over). You say (or at least strongly imply) that even if these interest payments are our top priority, the Treasury is likely to have insufficient funds to consistently make them, due to daily fluctuations in revenue. Well -- I ask again, where is your data to support your assertion?? Can't you at least link to or post daily revenue and interest expense data that support your assertion, if you actually have such support for your assertion (as opposed to just, well, implying something without any real basis)? Even if there are any occasional days when interest expense exceeded revenue, there would still be the question of whether or not the Treasury would really be forced to live day-to-day, as opposed to parking the vast surplus (of revenues over interest expense) that it would have on almost every other day, but at least it would be a start if you could at least offer that much, which is to say offer something, anything that backs up your assertion.
Yep, once again, here's the link and the money quote from that Economist article:
"The helpful table below from Lou Crandall of Wrightson ICAP shows that in every month this year, projected cash receipts comfortably exceed interest payments; the narrowest margin comes in November, when receipts exceed interest by $131 billion."
http://www.economist.com/blogs/freeexchange/2011/01/americas_debt
That table reflected projected revenue receipts to interest expense payments for each month in 2011.
Earlier Bartlett wrote in response to this challenge:
"You have to remember that the Treasury's cash flow is not constant. There are quarterly bulges followed by months of negative cash flow. There is no assurance that on any given day it will have the cash to redeem maturing notes, bonds and bills and also have the cash to pay interest. If payments are not made in a timely manner then a default occurs. But Treasury is also required by law to make Social Security payments exactly on schedule. In theory this is not a problem so long as there are enough Treasury securities in the trust fund. But to pay the benefits, Treasury can't send people bonds; those bonds have to be converted to cash."
$131 billion in the worst month strikes me as a pretty good cushion and more (much more) than enough to also repay sufficient funds to Social Security to enable it to be current on those SS payments (assuming they are "legal obligations" in the first place). With respect to the supposed problem about "redeeming maturing notes", Bartlett seems to forget that Treasury can make new issuances to satisfy any redemptions. If you redeem $100 of outstanding debt and simultaneously issue $100, the debt limit is not exceeded. The only issue is interest on the debt. If Treasury could not plan for or work around any daily anomaly (which is exceedingly highly unlikely to begin with) we need a new team.
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