Thursday, July 28, 2011

Obama's Options


My piece on President Obama's options in the debt ceiling crisis-- ranging from jumbo coins to section 4 of the Fourteenth Amendment-- is on, Here's the part about the most likely scenario if no deal is reached, and the role that section 4 would play:
Like Congress, the president is bound by Section 4 of the 14th Amendment, which states that "(t)he validity of the public debt of the United States, authorized by law . . . shall not be questioned." Section 4 was passed after the Civil War because the framers worried that former Southern rebels returning to Congress would hold the federal debt hostage to extract political concessions on Reconstruction. Section 5 gives Congress the power to enforce the 14th Amendment's provisions. This does not mean, however, that these provisions do not apply to the president; otherwise, he could violate the 14th Amendment at will.

Section 4 requires the president not to put the validity of the public debt into question. If the debt ceiling is not raised in time, there will not be enough incoming revenues to pay for all of the government's bills as they come due. Therefore he has a constitutional obligation to prioritize incoming revenues to pay the public debt: interest on government bonds and any other "vested" obligations.

What falls into the latter category is not entirely clear, but a large number of other government obligations -- and certainly payments for future services -- would not count and would have to be sacrificed. This might include, for example, Social Security payments.

To be sure, the president could keep paying Social Security if he could keep the total amount of debt constant by redeeming bonds in the Social Security trust fund for cash and immediately selling new bonds to replace them. But the money coming in may not be able to keep pace with the money going out. Even if he tries his best, the president may not be able to pay every Social Security check in full on time.

If the president stopped paying parts of Social Security or other government programs that the public relies on, we would have a partial government shutdown. This would quickly put enormous pressure on Congress to raise the debt ceiling to make it possible to resume normal government operations.

Thus, even if Social Security and other social safety net programs are not part of "the public debt," under Section 4, failure to pay them promptly and in full will probably lead to a political solution to the debt crisis within a week or so. The closest precedent is the 1995 government shutdown precipitated by the Republican-controlled Congress' battle with President Bill Clinton.

Read other posts on the debt ceiling crisis

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