Monday, May 16, 2011

Debt by Fiat? Musings on the Constitutionality of the Debt Ceiling

Today, May 16, 2011, according to Treasury Secretary Geithner, the Federal government hit the debt ceiling of $14.294 trillion. (odd number to set the limit at, right?) That's $14,294,000,000,000.00. Anyways, the Treasury has begun taking extraordinary measures to prevent defaulting on its loans until August 2, after around which those normal extraordinary measures won't be enough. Right now that includes raiding the Federal employee pension fund. (The government is legally required to repay the fund with interest, although I believe that is along the lines of what they said about the social security trust fund.) What would defaulting on loans mean besides possibly a government shutdown like the one averted earlier this year? Many economists say a global financial catastrophe. US debt is looked up as being an investment safe as cash. That would no longer be the case. Congress isn't stupid enough to let that happen of course, right? But one has to wonder should Congress be stupid enough to fail to raise the debt ceiling by around August 2 could the extraordinary measures include an Executive Order either raising the debt ceiling or simply instructing the Treasury to ignore the debt ceiling entirely and continue issuing debt?

Should that discussion arise, which I imagine it will if come July the debt ceiling still hasn’t been raised, I think pivotal to that discussion will be 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.

The question is, would not raising the debt ceiling on its debt cause the validity of the public debt to be questioned? From a financial market perspective, most definitely. For that matter, the mere talk of the debt ceiling causes questioning of the validity of the public debt of the United States in financial markets. As long as there are accounting gimmicks to avoid default then probably the debt is not questioned. But you would be hard pressed to say the public debt is not questioned if the United States defaults on the public debt. Almost by definition it is being questioned.

There's another key point though in that section, the validity of the public debt, authorized by law. Who has the power to authorize by law? Well, Article I of the Constitution states:

All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.

The President does not have legislative powers to make laws. Additionally, Section 5 of the Fourteenth Amendment states:

The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.

It doesn't state the President has the power to avoid the questioning of the validity of the public debt. Would an executive order raising the debt ceiling or instructing the Treasury to ignore it be introducing public debt not authorized by law? My guess is probably technically. Strictly speaking, not only would that be public debt not authorized by law, but that would be additionally public debt in opposition to a law made by Congress. Now, should such an Executive Order be made and found unconstitutional by the Supreme Court I'm betting Congress would choose to honor those debts issued in the interim. Of course, would the market believe the debt still had the full faith and credit of the United States government? That's a whole different discussion I won't get into now.

But wait, if not raising the debt ceiling would cause the validity of the public debt of the United States to be questioned, and if only Congress has the power to authorize debt, which wins? Isn't there a dichotomy between the not questioning of the validity of the public debt and not exceeding the debt ceiling? This raises a bigger question than does the President have the power to raise or ignore the debt ceiling. Does Congress have the power to institute a debt ceiling? In other words, is a debt ceiling even constitutional in the first place?

Now wait, if a debt ceiling isn't constitutional, what's to stop Congress or the Executive Branch from borrowing without control. Well, first off, clearly a debt ceiling hasn't stopped us from borrowing without control. Need I remind you, $14,294,000,000,000.00. But we haven't always had a debt ceiling. The debt ceiling wasn't around until 1917. There is a constitutional means for controlling spending and borrowing, it's called a budget. If Congress doesn't want more borrowing than Congress shouldn't have passed a budget which requires more budgeting. The Executive Branch cannot legally spend money that Congress hasn't appropriated. And yet, Congress just last month appropriated a budget which we knew then would necessitate the debt ceiling being raised. There's a conflict right there. Is the Executive Branch supposed to follow the appropriations by Congress or follow the debt ceiling by Congress? Is one law passed by Congress trump the other? You don't knowingly put together a budget that relies on increasing debt while also knowing you aren't willing to rely on increasing debt. If you're going to do that, then you should cut spending enough so you won't increase debt, not play chicken with your debt limit. If you want to limit debt, limit your spending. (or increase revenue)

I don't have the answer to the question of whether the President can by Executive Order, by fiat, raise or ignore the debt ceiling. Nor do I have the answer to whether the debt ceiling is even constitutional to begin with. Only the Supreme Court can definitively answer those questions, and only if and when such an Executive Order is if ever issued, and of course only after relying on years of case law in addition to the Constitution.

(In full disclosure: Although I may be an employee of the government I am only writing as a private citizen exercising the freedom of speech and am not in any way, shape, or form speaking on behalf of the United States government.)