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Constitutional Crisis Over Debt Ceiling? Does the Government Have To Shut Down?

letsgetitdone's picture

Recently, my friend Marshall Auerback posted an article at New Deal 2.0 about Obama's coming “teachable moment” when the Republicans try to wring concessions out of the Democrats by refusing to raise the ceiling on the national debt. The post stimulated a lot of good discussion about alternatives Obama might have to shutting down the Government in response.

In this post, I want to raise the question again about what what might happen if the Republicans refuse to raise the debt ceiling, preventing the Federal Government from issuing any more debt, because I think we can get some interesting discussion started here, and perhaps might come up with something that would short-circuit the coming Congress. Here are some considerations from the discussion on Marshall's post that may prompt that discussion.

In addition to mandating a debt ceiling, Congress also mandates that the Government can’t deficit spend unless it issues debt in one-to-one dollar correspondence. So, if Congress refuses to raise the debt ceiling, the Executive Branch cannot comply with the mandate about issuing debt. Also, it’s the law that the US Government must pay its debt obligations as these fall due, and fulfill the terms of various programs which require expenditures. In fact, as Tom Hickey points out, the 14th Amendment to the Constitution says in part:

“Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. . . . ”

So, in this situation, the Executive has numerous legal mandates in conflict, and the President has the duty to faithfully execute the laws. Why, in this situation, can’t the Attorney General argue that Congress’s refusal to lift the debt ceiling has created a constitutional crisis and that it is the interpretation of the Executive Branch that the refusal to raise the debt ceiling negates the legal requirement that the Government must issue debt dollar-for-dollar in order to spend? Why can't the AG argue, further, that the Government has unlimited constitutional authority and, in some cases, obligations to spend and create fiat money as long as such spending has been previously authorized by Congress, whether or not the debt ceiling is extended?

What if, in line with this interpretation, the Executive Branch orders the continuation of all Federal spending until the constitutional crisis is resolved, and orders the Fed to mark up its accounts in line with its directives, so that spending can continue and Treasury Accounts will have positive balances? What if, meanwhile, the Executive challenges Congress to remove the conflict created by its conflicting mandates through either:

1) Raising the debt ceiling;

2) Ending the constraint that debt must be issued by the Treasury to cover Federal expenditures previously appropriated;

3) Revoking the Federal obligations to spend that are forcing the Executive to exceed the debt limits;

or

4) Seeking a Supreme Court judgment resolving the conflicts among conflicting Congressional mandates on the Executive?

What would be wrong with something like this? Why should the interpretation be that the US must default on its obligations and shut down the Government? After all, it will probably not even be the explicit will of Congress that any such default occur, but only the will of one or a small number of Senators, who will not let the Congress express its will.

Also, the requirement of the 14th Amendment would seem to justify the incremental re-payment of all debts as they come due without the Government having to issue more debts as currently required by Congress. Why wouldn’t Obama just do this? He doesn’t seem to be shy about grabbing more power for the Executive when it comes to "homeland security," civil liberties, or privacy. Why not grab some power when it comes to spending money too?

Seriously, the 14th Amendment may be the key, here. We have Congress, by refusing to increase the debt limit, “questioning” the validity of the public debt, and acting unconstitutionally, in allowing their internal rules (filibusters and holds) to prevent a majority vote upholding the integrity of the US debt, as required by the constitution. The Executive, as a constitutional officer, sworn to uphold it and its guarantee of the debt, would have no choice but to act where Congress will not and spend to re-pay debt.

Beowulf offers an argument about how that may done constitutionally:

”Start dropping coins in the fountain.

1.The Fed buys coins from Tsy at face value.

2. the face value of a coin does not have to equal the value of the coin’s metal content (a dollar coin costs 12 cents to mint, the rest is seigniorage,

3. Seigniorage is booked as revenue, not debt.

4., the Secretary has the authority to mint platinum and coins of any “specifications, designs, varieties, quantities, denominations, and inscriptions” 31 US 5115(k) & 5115(i)(4)(k).

5. TARP bill gave the Fed authority to pay interest on reserves. Instead of pegging the FFR rate by draining excess reserves with bond auctions, the Fed can set the IOR rate at the FFR rate to keep the latter from dropping to zero.”

A neat solution to the debt ceiling problem, perhaps?

Please keep the new ideas and criticism coming. It will be our contribution to solving the coming tea-party induced crisis.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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beowulf's picture
Submitted by beowulf on

As the conspiracy theorists at godlike productions like to say, bring on the doom! Coin seigniorage lets the government spend more than it collects in taxes by filling in the deficit with seigniorage revenue instead of borrowed money. Tea Party can knock themselves out with the balanced budget amendment if they want but the budget will already be balanced and Tsy won't ever need to sell more bonds, so we could leave the current debt limit in place forever.

The catfood commission's goal is to save $4 trillion over the next decade. Meanwhile, the CBO project Tsy will pay $5 trillion in net interest over that time period. A no-bond world means Tsy won't have to pay that once current debt expires.

Of course, it won't get that far, Wall Street makes too much damn money on the Treasuries market to ever allow Congress to block a debt limit increase (or allow a no-bond system), so I'm not losing any sleep over it.

Submitted by libbyliberal on

Email from Hawkins:

Their Green New Deal includes public living-wage jobs for the unemployed, a state single-payer health care system, fully funded public schools and colleges, a ban on hydrofracking, and a clean energy program based on energy efficiency, renewable generation, and mass transit.

To pay for the Green New Deal, Hawkins said the Greens would campaign for progressive tax reform, including the Stock Transfer (sales) Tax.

"We are going to fight the Cuomo's property tax cap which dooms our schools and other local services to deep cutbacks. We will demand that the state take over the county portion of Medicaid costs, which now equal 45 percent of counties property tax levy on average. And we will demand restoring the kind of progressive income tax we used to have in the 1970s, which will give 95 percent of New Yorkers a tax cut while generating $8 billion more in revenues by making the rich pay their fair share again," Hawkins said.

"The bipartisan consensus on deficit reduction through spending cuts is a recipe for growing deficits due to the economic stagnation and high unemployment they will cause. That's what got us into the Great Depression. Today it will prolong Great Stagnation. With consumer demand depressed by high household debt, high unemployment, and stagnant wages, business will not invest because the consumer can't spend. If government doesn't step up spending, we are headed for a vicious circle of depression and deficits," Hawkins added.

Hawkins also said that Green Party will use its ballot line differently than other third parties in New York have.

"The Greens are completely independent of the old parties. We will run our own candidates against the both major parties. We aim to become the third major party in New York with growing representation in local and state legislatures and executive offices.

Vision without action is a daydream. Action without vision is a nightmare. (Japanese proverb)

letsgetitdone's picture
Submitted by letsgetitdone on

for state Government. But at the Federal level they have to get rid of their balanced budget ideas. The Federal Government never needs to have trouble paying for anything that needs to be done here in this country. When are we going to let it do it?

Submitted by libbyliberal on

lets, what do you think of Feingold's stance? Just read this article:

The easiest course to bring Feingold into the debate would be for President Obama to nominate him as the new White House budget director. Obama's present nominee for the post, Jacob Lew, already is in some trouble, anyway. Sen. Mary Landrieu has gone as far as to put a hold on the Lew nomination.

At this stage, Obama could easily point to the new realities of the election, thank Lew for his willingness to serve, withdraw the Lew nomination, and name Feingold instead. Feingold having been a senator himself, other senators—Democrat and Republican—would not likely oppose Feingold's nomination.

If Obama doesn't want to put Feingold in at the Office of Management and Budget, the president could still find a way to employ him.

Obama clearly is not going to preempt or subvert his own task force, but the president could—and should—bring Feingold and his ideas into the mix.

This could involve Obama himself proposing the Control Spending Now Act to Congress, and daring the new House majority to defeat a bill so named, and just see how big a PR disaster that would be.

Obama also could bring Feingold to the White House in an explicit policymaking capacity. It wouldn't be enough to put the soon-to-be-former senator in an advisory capacity. Rather, the president should empower Feingold with actual authority and decision-making—and then send Feingold to Capitol Hill to begin negotiations on what a deficit-reduction deal could look like.

His Control Spending Now Act:

$244.5 billion in deficit reduction by ending the Wall Street Bailout
$50 billion in deficit reduction by allowing the reimportation of FDA-approved prescription drugs
$4 billion in deficit reduction by cutting C-17 aircraft the Department of Defense does not want
$1.8 billion in deficit reduction by ending an IRS slush fund

And this:

TOUGH REFORMS: The current system in Washington makes it all too easy for members of Congress to slip funding for wasteful projects into must-pass bills, costing billions of dollars in taxpayer money. Feingold wants to make it harder to pass wasteful spending in the first place by instituting reforms that crack down on the status quo in Washington. Feingold's plan includes major proposals like earmark reform, a presidential line item veto, and a statutory pay-as-you-go law that would bring some much needed accountability to the federal spending process.

CUTTING WASTE: Feingold is also working to get the government's fiscal house in order by proposing dozens of cuts that eliminate wasteful or inefficient spending. The Control Spending Now Act goes after abuses of taxpayer dollars in every area of government – from a weapons system the Pentagon doesn't want to a U.S. radio broadcast to Cuba that virtually no one even gets.

A RECORD OF PROTECTING TAXPAYER DOLLARS: Feingold's new legislation builds on many years of working to cut waste and reform the budget process. In his first campaign for the U.S. Senate, in 1992, Feingold unveiled his 82-point plan to slash the deficit. Many of those reforms have been enacted, as have many other fiscally responsible initiatives Feingold has championed, such as his effort to create an inspector general to oversee U.S. taxpayer dollars in Iraq. These are all part of Feingold's record of working to prevent the abuse of taxpayer dollars and restore fiscal discipline in Congress.

Vision without action is a daydream. Action without vision is a nightmare. (Japanese proverb)

letsgetitdone's picture
Submitted by letsgetitdone on

But, the biggest challenge progressives face is deficit hawkism. We just have to get over the idea that we can live with balanced budgeters and people who seek surpluses that can only lead to further concentration of wealth in the long run and the destruction of democracy.

The natural State of things for a nation running a trade deficit and also having a propensity for private sector savings is have Government deficits. If we won't we'll have either recessions every few years or credit bubbles like we had in the 90s, maybe both.

So, Feingold for the Supreme Court yes. Feingold for OMB or any other finance/economy position other than bank regulation, no!

beowulf's picture
Submitted by beowulf on

Feingold is a great guy, but right now the White House should be hiring advisers that understand that what the economy needs is more federal spending not less.

Right now the economy suffers from a $1 trillion+ output gap that Dean Baker helpfully measures with a "recession waste" clock.. I'd call it the "output deficit", since everybody is against deficits, no?

That's why the deficit hysteria is so absurd, they're focusing on the wrong freakin' deficit! The government should be spending much more, not less. Of course there is a way to get consumers spending without government expenditures. Congress can use its coinage power to re-nominate existing coins. The penny is worthless, but there are 200 billion of them in circulation. Reset their value at $5 and its the same as dropping a $1 trillion from a helicopter into piggy banks, ash trays and change jars across the Republic-- but with no govt spending or borrowing or Blackhawk flight time required.