Monday, June 27, 2011

The Debt Ceiling

Gerard N. Magliocca

I am struck by two aspects of the debate over raising the debt ceiling. First, any ceiling smaller than infinity is nothing more than a device for politicians to posture and extract sugarplums from taxpayers. Second, there are serious constitutional problems with any interpretation of the current debt ceiling statute that would cause a default.

To restate the first point, why have a debt ceiling that is less than infinity given that every time we approach the limit, Congress raises the amount that we can owe. There are two explanations that make sense. One is that it gives elected officials a chance to huff and puff about our debt and mobilize voters. This is also why the minimum wage is not indexed to inflation. If Congress did that, then "raising the minimum wage" could not be wheeled out as a political issue every few years. The other answer is that the bargaining over the debt ceiling gives Members the opportunity to extract goodies from the Treasury in exchange for their votes. If John McCain were President, Senate Democrats would be doing the same thing that House Republicans are doing now. In short, there is no public policy reason to have a debt limit less than infinity--it's all about political rent-seeking.

On the constitutional question, Section Four of the Fourteenth Amendment and the Court's analysis in Perry v. United States casts significant doubt on the Federal Government's authority to suspend payments on its bonds. Congress can say that no more money may be borrowed to fund other appropriations, but the same cannot be said for debt that is incurred to pay off existing obligations. Accordingly, the Treasury should announce that it will continue to issue new bonds to pay the interest and principal of the national debt if Congress fails to raise the ceiling. This would calm the markets and avoid a grave constitutional breach.


Perhaps this post may serve as a continuation for comments on Sandy's June 20th post "Life in a constitutional dictatorship (Again)," on Section 4 of the 14th Amendment. I am in the process of reading Michael Abramowicz's "Beyond Balanced Budgets, Fourteenth Amendment Style," 33 Tulsa L. J. 561 (1997) that focuses on Section 4. I shall hold off on comments here until after I have completed reading the article, except to say that being a fan of the late Joseph Heller especially because of his "Catch-22," I suspect that Abramowicz may carry some of Heller genes.

With all due respect, I think you need to give this issue a little more thought. If you are going to ask why there is a debt ceiling, you might want to consider the fact that Article I gives Congress, not the executive, the power to borrow. If the framers had wanted to authorize the executive to borrow, or to borrow all sums required to make up the difference between spending and revenue, they could have said so.

You say there is “significant doubt on the Federal Government's authority to suspend payments on its bonds.” Fair enough. But there is at the least “significant doubt” as to the executive’s authority to borrow money without statutory authorization, something that it has never done.

If Congress fails to raise the debt ceiling before expenditures exceed available funds (something that has happened before), the first step is for the Treasury Secretary to use available statutory authority to raise funds and limit outlays. Once those options are exhausted, it would seem to me that the Secretary should cease paying those obligations which do not enjoy constitutionally privileged status (eg, by furloughing non-essential federal employees).

If at some point there is no money even to make payments on government bonds (which seems unlikely) or other essential expenditures, the President could make the argument that he must go out and borrow more money to keep the government from collapsing. But I think that this argument would be more of an emergency assertion of extra-constitutional powers, rather than a valid constitutional argument. If the need to make certain payments gives the President constitutional authority to borrow, would not it equally give him constitutional authority to appropriate money (to repay bondholders or to pay for an “essential” war waged pursuant to his Article II powers) or to raise taxes?

I have posted extensively on this issue at Point of Order ( Also, in addition to Abramowicz’s article that Shag notes, you should take a look at Anita Krishnakumar, In Defense of the Debt Limit Statute, 42 Harv. J. Legis. 136 (2005).

There's an easier way around it, one in fact recommended by economists who subscribe to Modern Monetary Theory: print the money and use the new bills to pay the obligations as they arise.

There's nothing unconstitutional about this, because Congress already authorized the spending when it passed the budget.

There is a risk of inflation, but that risk is trivial under current economic conditions. In fact, some inflationary pressure has been recommended by many mainstream economists as a remedy to the existing liquidity trap.

On the constitutional question, Section Four of the Fourteenth Amendment and the Court's analysis in Perry v. United States casts significant doubt on the Federal Government's authority to suspend payments on its bonds. Congress can say that no more money may be borrowed to fund other appropriations, but the same cannot be said for debt that is incurred to pay off existing obligations. Accordingly, the Treasury should announce that it will continue to issue new bonds to pay the interest and principal of the national debt if Congress fails to raise the ceiling. This would calm the markets and avoid a grave constitutional breach.

And the Executive seizing the power of the purse from the Congress is not a grave constitutional breach?

The Treasury can already issue new bonds to replace bonds due for payment and stay under the present debt limit.

Federal tax revenues are more than sufficient to continue paying interest on the debt, not to mention cut SS and Medicare payments.

The Obama Administration is threatening to unconstitutionally default on the debt precisely to panic the markets and place pressure on the GOP House to underwrite more debt to finance the current massive deficit spending.

If Obama either carries through on the default or issues debt above the debt ceiling, the House should immediately draft articles of impeachment.

Mark Field said...

There's an easier way around it, one in fact recommended by economists who subscribe to Modern Monetary Theory: print the money and use the new bills to pay the obligations as they arise.

There's nothing unconstitutional about this, because Congress already authorized the spending when it passed the budget.

The President does not have this power. Congress delegated this power to the Federal Reserve.

There is a risk of inflation, but that risk is trivial under current economic conditions. In fact, some inflationary pressure has been recommended by many mainstream economists as a remedy to the existing liquidity trap.

There is no liquidity trap. The Fed has already effectively doubled the money supply since 2008.

As a result, the price of commodities including oil has soared in tandem with the money supply.

Businesses can no longer absorb these costs and they are being passed through as rising PPI core inflation, which is currently 3.9%.

There is nothing modern about MMT. It was tried during Weimar Germany and Peronist Argentina to inflate away foreign debt.

We are heading towards a second round of 1970s style stagflation as it stands. Adding another $1.5 trillion of new dollars to the money supply would get us into German and Argentina territory.

Before this descends into predictable territory (with delightful discussions of yodeling and the like), let me make a couple of observations. First, there is really no point in trading accusations regarding the motivations of Obama vis a vis the congressional Republicans. Lets stipulate that everyone believes that their side has the purer motivation. But if our constitutional rules depend on that assessment, we might as well have no rules at all.

Second, if Mark and Bart want to debate economic theory, I would suggest they move their discussion to an economics blog. My friend Tim Taylor has a good one (the conversable economist)

Also, I understand that Professor Magliocca is a classmate of both Abramowicz and Krishnakumar. So perhaps he will be particularly interested in exploring their views.


Perhaps I jumped the gun.

Is there another conceivable reason for the Obama Administration to state that failure by Congress to raise the debt ceiling will result in default on the national debt apart from an intent to panic the markets to apply political pressure on Congress?

My suggestion incorporates both economic theory and the legal issues because it offers a perfectly constitutional way to solve the problem.

Bart- I have no doubt that the administration is trying to put pressure on Congress. I believe that they want Congress to think that the markets may panic if the debt ceiling is not raised. This may be because the administration believes that the markets actually will panic if the debt ceiling is not raised or because they want Congress to give them what they want in order to avoid a panic (or both).

I do not think that the administration wants the markets to panic, if they can get what they want without it. Whether or not they would prefer a market panic to a political defeat (whatever that might entail) is not a question that I can answer. If I get the chance to look into Obama's soul, I will let you know.

We can play this same game with regard to the House Republicans, and it will be just as fruitful.

Actually it is not completely true that only the federal reserve may print money. It is only true with respect to paper money.

The mint, a branch of the treasury, is authorized to coin money. In particular, there is a rather fascinating section - the origin of which I'm unaware - which permits the mint to issue platinum coins "in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the [Treasury] Secretary, in the Secretary’s discretion, may prescribe from time to time." 31 USC 5112 (k)

A different section instructs the Treasury Secretary to deposit coinage signorage (i.e. the difference between the cost of minting a coin and the face value) into the general treasury account.

Thus it would be perfectly consistent with statute for the mint to coin platinum coins with a face value of $1 million, sell them and deposit the proceeds in the general treasury for any lawfully appropriated purpose. Said coins would be legal tender and thus banks would be required to accept them for deposit.

I finally finished reading Abramowicz's article, which runs just over 50 pages. I could not ignore many of the footnotes. I was impressed with the article, especially since it was published in 1997, several years after the Gingrich shut down, while the author was Executive Editor of the Yale Law Journal, expecting his J.D. the following year.

The late 1990s flowed well financially and economically. So perhaps this article did not receive significant critical review and follow up from legal academics and elected officials, or because of the youth of the yet to be J. D. author. While he ends declaring Section 4 dead, subsequent events may revive it. While mls did a good job with his posts, the article itself is worth reading. I wonder if mls has tracked reactions to the article since its publication. I have yet to access the article written by Anita Krishnakumar but hope to do so later today.

Sandy Levinson's "The Embarrassing Second Amendment" was published in 1989. It took a number of years for the push that resulted in Heller and McDonald v. Chicago. Perhaps Abramowicz's article will serve to revive Section 4 of the 14th Amendment some 14 years after its publication despite the potential hurdles described in the article.

The article indicates that government employees might not benefit from a revival of Section 4 with respect to their future salaries. But presumably federal judges/justices might, as their appointments are to serve for life subject to appropriate behavior. Query whether a revival of Section 4 might be addressed by the courts? Or is this too political for the courts under separation of powers? More so than other vague provisions in the Constitution, Section 4's meaning is complex in connection its impact upon the debt ceiling.

I'll have to check my portfolio for cash flow if my Social Security payments stop - unless one side or the other blinks, as in the past.

Back to Abramowicz, his approach in the article of going first to the future and then to the past and the present made for a nice read. Joseph Heller would have been proud of him.


Was there any discussion concerning how courts would actually enforce Section 4?

Meeting the standing requirements would probably require a bond creditor file suit to enforce its constitutional right to be paid.

After the courts allowed the sub rosa sale of Chrysler and GM to the government stripping the secured creditors of their rights to the company assets in violation of well established bankruptcy law, I am none to confident the courts will enforce Section 4.

I have not as yet accessed Krishnakumar's article, which was published in 2005 (cite noted above by mls). However, I did access a Harvard Law School Federal Budget Policy Seminar Briefing Paper No. 11 titled "The Debt Ceiling and Executive Latitude" by Ellen Bradford and Russell Constantine (Last updated January 7, 2009 by Avery Day. [I do not have the URL, but just Google.]

This paper cites Krishnakumar's article and discusses her reformation proposal. However, the paper does not reference Abramowicz's article in footnotes and bibliography. In fact, the paper make no reference to Section 4 of the 14th Amendment or other constitutional issues involved with the debt ceiling statute. In its closing paragraph on states, there is a brief reference to state constitutions on state debt limits.

The paper in focusing on public debt does not provide a broad definition as raised by Abramowicz in his article. So the paper is no help on what constitutes public debt for purposes of Section 4. Perhaps Krishnakumar's article does. Hopefully I'll access her article later today.

But the paper is a good, although wonkish, read. It spends a great deal of time on the post-Gingrich shut down during the Clinton Administration, including a chronology of that crisis in Table 1.

While I am of course for selfish reasons (my Social Security checks!) interested in the debt ceiling issue, my curiosity lies with the constitutional aspects raised by Abramowicz. Other than that, I always enjoy the political games played over the years by both parties on the debt ceiling. Here we go again. Perhaps Newt while on the campaign trail will talk about the debt ceiling crisis that he led back in the "good old days."

As to our yodeler's question regarding the role of the courts in enforcing Section 4, I suggest he read at least Part III. B. "Death by Nonjusticiability?" in Abramowicz's article and its subsections headed: Sovereign Immunity, Standing, Political Questions, Ripeness, Separation of Powers for plausible answers. Chances are the parties will work something out, kicking the can down the road (see Eugene Robinson in today's WaPo), before courts might get involved.

But I'm curious on the constitutional aspects on which there appears to be silence from constitutional scholars, including those claiming expertise on the 14th Amendment. Could it be that originalism and living constitutionalism cannot provide a viable solution? After all, the debt ceiling results from a statute and not a specific provision in the Constitution. I have the feeling that Mr. Abramowicz is feeling quite amused at the moment.

I have accessed and downloaded Krishnakumar's article. Before starting to read it, I checked footnotes for references to Abramowicz's article and found two:
(1) Footnote 19 (page 139) and (2) Footnote 217 (page 175). I had hoped to see if Krishnakumar had focuses on Section 4 of the 14th Amendment; she doesn't seem to have. Since Section 4 is my basic interest, I'll defer reading, for the time being, her article, which is quite detailed on the debt limit statute. I also note that the author graduated from Yale Law School in 1999 and gave thanks to Abramowicz for "helpful comments on earlier drafts." mls indicates that Gerard Maglioccca may have been classmates with these authors and suggests that the former may have some insights to pass on to us. That would be nice.

There comes to mind the story of a too tall truck wedged in an underpass, with experts milling around trying to figure out how to get the truck out. A young lad suggested letting the air out of the tires. Is that what Abramowicz did with his article? Now it's time for the Executive and Congress to let some air out on the debt limit.

The Huffingon Post on 6/28/11 posted an article on the debt ceiling and Section 4 of the 14th Amendment. There is not much of a legal review of the possibility that the debt ceiling statute is unconstitutional. Apparently constitutional scholars remain reluctant to comment on Section 4. Did Mr. Abramowicz let the air out of the tires? If so, then tow the truck away.

Take a peek at today's Tom Toles political cartoon in the WaPo on the "highly charged, explosive" debt ceiling vote with Obama and the Elephant in the Room sitting at a table to talk about the explosive pile at Obama's back. The Elephant in the Room says: "My calculation is you're sitting closer" which Toles references as "Short Term Planning."

If Shag is thinking about the same Huffington Post article, the big news there is that some US Senators, including Coons of Delaware, are considering whether to claim that the debt ceiling is unconstitutional. Perhaps they are consulting with the keepers of the presidential fig leaf (to borrow Posner and Vermuele's term for OLC) to determine if they can take this position without being laughed out of town.

Here's the URL for my reference on the Huffington Post article on the debt ceiling statute::

This involved a Senator other than Coons.

By the Bybee [expletives excluded this tine], I just noticed that Jack Balkin has a post on the background of Section 4 of the 14th Amendment. I thank him for his thoughts.

Shag- that was the article I was thinking of (Coons is one of the senators quoted).

Also, you may be interested to know that Abramowicz has weighed in here

Check out today's (7/1/11) WaPo Toles and Telnaes cartoons on the debt limit brouhaha-haha-haha.

And I note that Mark Tushnet has chimed in on Section 4 of the 14th Amendment in an asteriskical manner.

I'll check out the link mls provided to see what the kid who suggested letting the air out of the tires has to say after a 14-year nap.

Mr. Abramowicz retains well his constitutional chops. I especially like his (3) suggestion of what might happen. What he makes perfectly clear is that if Section 4 makes the debt ceiling statute unconstitutional - whether facially or as applied [Note: there was a recent paper made available via SSRN on the distinctions that was most interesting - I don't have the title/author handy at the moment] - the current issues are not resolved. After towing the truck away, it needs some fix-up.

I thank mls for finding the missing link. It's time for the Executive and Congress to act.

Gerard Magliocca has added a new post on this topic at this Blog. If this keeps up, we might get to a Minyan (including Goyim) of constitutional scholars chiming in on Section 4. (Perhaps for the Founding Fathers of the 14th Amendment this is an "OY VEY!" moment. But original intent originalism is no longer in vogue - or is it?)

Larry Solum at his Legal Theory Blog provides a link to Abramowicz's article with a "Highly Recommended - Download It While It's Hot!" Solum did not mention, as he sometimes does, that the author was a law student at the time of publication.

Mark Tushnet has a couple more posts at this Blog on Section 4 of the 14th Amendment. In one post he makes reference to this being liberals' Heller. Query: What's more dangerous, an unlimited Second Amendment right or Section 4 providing that the debt ceiling statute is unconstitutional? And Mark wonders about living constitutionalists on Section 4, suggesting that in a constitutional foxhole there may only be originalists, perhaps because the Founders they rely upon have long been buried and whom they may soon join. So what is worse: death or debt?

I commend Professor Tushnet's very insightful posts (as Orin Kerr would say, that means I agree with him).

I, too, commend Mark Tushnet's posts, but as insightful as they may be, I'm not prepared to "Orin Kerr" them, as it may be difficult refining what Mark actually means in distilling his several posts with Brad DeLong's comments elsewhere. My commending is that more dialog may result, including perhaps more from Mark, as well as other constitutional scholars to get at least a constitutional Minyan, and perhaps even lure Keith Olbermann into the "Countdown."

Shag (and anyone else who is interested)- I have posted my counter-analysis to Professor Balkin's analysis of the Public Debt Clause legislative history at

mls' counter proposal seems to avoid this significant portion of Balkin's post:
"Does Section Four prevent Congress from refusing to raise the debt ceiling? Does it authorize the President to keep paying debts regardless of what Congress does?

This essay does not attempt to answer these questions in detail; I leave that to a future discussion. My goal here is to offer a basic account of the legislative history of Section 4. This discussion, I hope, will be of interest both to originalists and to non-originalists who believe that text, structure and history matter, even if they are not always dispositive of current constitutional questions."


mls and Balkin may disagree on the legislative history, but it's a tad too strong to "accuse" the latter of giving the " ... use of legislative history a bad name." We know from Heller and McDonald v. Chicago that both sides claim to rely on history but disagree on the history. Balkin alludes to the difficult interpretation/construction issues in answering the questions he defers at this time to answer. But with mls, we got another towards the Minyan.

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