So word is going around Washington that the White House and Congressional Democrats are considering simply ignoring the debt limit. Here’s Geitner in May:
I think there are some people who are pretending not to understand it, who think there’s leverage for them in threatening a default. I don’t understand it as a negotiating position. … can I read you the 14th amendment? … ‘The validity of the public debt of the United States, authorized by law, including debts incurred for the payments of pension and bounties for services in suppressing insurrection or rebellion’ — this is the important thing — ‘shall not be questioned.’ So as a negotiating strategy you say: ‘If you don’t do things my way, I’m going to force the United States to default–not pay the legacy of bills accumulated by my predecessors in Congress.’ It’s not a credible negotiating strategy, and it’s not going to happen.
Conn Carroll at the Examiner writes:
Geithner has made it clear in earlier letters to the Senate that he considers all federal government obligations (Social Security payments, ethanol subsidy payments, interest payments on Treasury securities, etc.) completely equal. According to Geithner’s logic, a failure to pay California millions of dollars for their high-speed rail project would be the same as missing interest payments to bond holders. So, even though the Treasury Department could easily pay the $29 billion in August interest payments with the estimated $172.4 billion it will receive in revenue, thus avoiding default on the public debt, Geithner appears to be arguing the 14th amendment allows him to pay all of the federal government’s bills regardless of where Congress set the debt limit.
Is this the view of the White House? Could Obama order Geithner to ignore the debt limit and sell Treasury bonds? Obama ducked a direct question on this point Wednesday from NBC’s Chuck Todd. Someone should ask it again.
And then apparently this morning Schumer was asked about it on a conference call and he confirmed its being discussed, though not necessarily embraced — yet.
So here’s Section 4 of the 14th Amendment:
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. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
Oh and for good measure, here’s Section 5:
Section 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.
I’m no Constitutional lawyer, but doesn’t all that stuff about “by law” and “The Congress shall have power to enforce, by appropriate legislation…” suggest it’s at least an open question whether the Secretary of the Treasury can do this? I’m trying to be generous here because I feel like I’m missing something. But on its face, this maneuver sounds like the mother of all nuclear options.
Update: Okay I get it a little better now thanks to — of all things – this Huffington Post piece. I still think it’s crazy talk given that the U.S. Government can easily pay the interest on the debt, by not spending money on normal spending. It seems to me that just because Geithner says there’s no difference between a payment for road building and an interest payment doesn’t make it so. But I’ll await others to edify me further.
Update II: This is well put, by commenter mheslep:
Do we really need to summon the lawyers for an opinion on this? If the President held another bond auction, via Geitner, without Congressional authorization to increase the debt he is willfully taking the power of the purse to himself and violating US law, committing an impeachable offense, if anything is.
I imagine that such a unilateral debt issue is also a practical impossibility, as there must be a cloud among buyers as to validity of bonds so issued.