Friday, October 01, 2021

Why the debt ceiling is constitutional (and what to do about it)


I recently noticed that the Stanford law website and this Vox article on which it is based assert that I believe that the current debt ceiling law violates the Constitution and that the president can simply ignore it. 

This is false. [Update-- Vox has now corrected its article.]

The two stories link to an Atlantic article I wrote in 2012 that actually takes the opposite position:

If Congressional Republicans are threatening to let the nation to default on its debts if [the president] doesn't agree to their demands, they are violating the Constitution.  And the president should call them out for such an outrageous demand. But does that mean that the president can raise the debt ceiling himself to remedy the violation?

Not so fast. Article I, section 8 of the Constitution gives Congress, not the president, the authority to borrow on the credit of the United States. Even so, under section 4 of the Fourteenth Amendment the president has an independent constitutional obligation not to allow the validity of the debt of the United States to be put into question. That means, at the very least, that the president must make sure that interest payments continue on existing federal bonds and similar obligations.  He must assure bondholders that they will continue to get paid even after the debt ceiling is reached. ...

The president's obligation to pay the bondholders first-- and not the power to ignore the debt ceiling--is how the Fourteenth Amendment helps the president resolve any debt ceiling crisis. All he has to do is follow the Constitution and he will come out on top. He doesn't have to raise the debt limit at all.  Instead, he must calmly explain to Republicans in advance what he will do -- and not do -- if they remain intransigent. He must explain to them that their course of action will inevitably lead to a government shutdown, and that the shutdown -- and its associated costs to the country -- will be on their heads.

I should add that it may not be possible for the Treasury Department easily to pay only the bondholders. My understanding is that many government payments these days are automated and it may be difficult to reprogram the systems in time to do this. But whoever gets paid, the bondholders must be included.

As soon as Treasury's extraordinary measures are exhausted, the government will have to shut down as many operations as needed to keep interest payments to bondholders flowing, as required by the Fourteenth Amendment. At that point, however, we will be in the middle of a global economic meltdown, which will put irresistible pressure on Congress to raise (or suspend) the debt ceiling once again. All that will have been gained from the disaster is loss of confidence in the United States and in the reliability of its financial obligations.

Yes, it's possible that if several weeks go by, and Congress still hasn't acted, the President might instruct the Treasury to borrow more money on an emergency basis as the least unconstitutional course of action. But there is no guarantee that the markets will accept the new bonds as valid, and in any case, the scenario is pure fantasy: Congress will act as soon as the markets crash, just as they did in 2008 in during the global financial crisis. The impending death of global capitalism will concentrate their minds.

The best solution, of course, is simply to repeal the debt ceiling so that it can no longer be used for hostage taking. But the debt ceiling law itself is constitutional. There are many stupid laws that are constitutional. The debt ceiling is one of them.

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