By Deborah Solomon
Washington's penchant for high-stakes drama is now manifesting itself in another fight over the debt limit, with some top Democrats suggesting that President Barack Obama should invoke the 14th Amendment and raise the $16.4 trillion debt ceiling unilaterally.
The White House continues to throw cold water on the idea, saying it doesn't believe the U.S. Constitution gives it authority to bypass Congress when it comes to issuing debt.
The reality is that the White House will be forced to invoke the 14th Amendment if a debt ceiling increase isn't agreed to next month. And it can do this without deploying the nuclear option of issuing new debt absent congressional authorization.
First, the facts: The U.S. reached its $16.4 trillion legal borrowing limit on Dec. 31, prompting the U.S. Treasury Department to begin using so-called extraordinary measures to finance the government and continue making interest payments. To free up money, Treasury can shift government-employee retirement funds out of Treasury securities and into idle cash, withhold year-end interest payments to government trust funds and employ other accounting maneuvers. Those efforts, however, will be exhausted by the end of February, according to the Congressional Budget Office.
Because the U.S. runs a budget deficit, it must borrow money to fund the government, but the authority to borrow more than the current $16.4 trillion limit rests with Congress. Without an increase, the U.S. will be unable to fund its obligations, such as Social Security payments, government salaries, interest on the debt and other expenses. Going down this rabbit hole would lead to a wave of government defaults, forcing the U.S. to violate the full faith and credit pledge it made to investors. The economic toll from such an outcome would make the last recession look like a bubble.
How will the U.S. avoid this scenario? Obama will face a stark choice, one that will invariably lead him to invoke Section 4 of the 14th Amendment. The Reconstruction-era provision was passed to prevent political wrangling over the debt after the Civil War as some feared Southerners returning to Congress would use the public debt to extract political concessions (sound familiar?).
Put simply, the provision requires the president not to put the validity of the public debt into question. (The section's language states: "the validity of the public debt of the United States … shall not be questioned.") That's prompted some Democrats like California Representative Nancy Pelosi, Illinois Senator Richard Durbin and former President Bill Clinton to recommend that the White House invoke the amendment to unilaterally increase the debt limit without Congress' consent.
The White House needn't go that far. As Yale University Law School professor Jack Balkin has pointed out in numerous blog posts, Section 4 means the president is constitutionally obligated to make sure interest payments on the debt continue and that bondholders continue to get paid. Failure to do so would violate the constitution, because it would call into question the validity of U.S. debt.
The U.S. could divert as much cash as necessary to make good on its debts and forgo other payments, like Social Security, Medicare and government funding. This, of course, would lead to a partial -- and, absent a debt ceiling increase, a complete -- government shutdown.
Polls consistently show most Americans would blame Republicans for a shutdown, which is why Newt Gingrich -- architect of the 1996 government shutdown -- recently called a debt-ceiling showdown a "dead loser" for the party. Obama will largely be able to absolve himself of liability, saying the U.S. Constitution gave him no choice but to make good on interest payments and that the Republicans' refusal to pay for spending they themselves authorized has triggered an economic tsunami.
The White House should make this course of action crystal clear to the Republican Party, if for no other reason than to hasten a deal. The 2011 debt- ceiling shenanigans will ultimately raise U.S. borrowing costs by $18.9 billion over the next decade. Obama has said he won't negotiate over the debt ceiling, meaning he won't allow Republicans to use the limit as a cudgel to force steep spending cuts. Yet it's hard to see how the White House can avoid another debt- limit showdown without relying on the 14th Amendment. (My colleague Josh Barro has championed reliance on a trillion-dollar coin to similar effect, but let's face it: It ain't gonna happen.)
Unfortunately, the administration doesn't appear ready -- or willing -- to play hardball. White House press secretary Jay Carney has swatted down the idea of using the 14th Amendment to raise the debt ceiling, saying "this administration does not believe that the 14th Amendment gives the president the power to ignore the debt ceiling -- period." And outgoing Treasury Secretary Tim Geithner has said the Treasury doesn't have authority to prioritize payments; it can't pick and choose which bills to pay.
All of this shows why, as Bloomberg View editors have written, more control over the debt ceiling should be given to the president. After all, raising the debt limit is the means by which the U.S. borrows money to pay for existing commitments that Congress itself has already authorized. Lucky for the White House, the Constitution leaves Obama no choice: The president must make good on U.S. debt. That, in turn, will require invoking the 14th Amendment.
Read more breaking commentary from Bloomberg View at the Ticker.
-0- Jan/07/2013 19:54 GMT