Funny Money: Obama Cannot Unilaterally Raise the Debt Limit
“The validity of the public debt of the United States, authorized by law, including debts incurred for payments of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned”
This amendment was enacted in 1868, and Section 4 was meant to address the concern that Congress would merely ignore the liabilities and military pension payments it owed from debts incurred during the civil war.
It does not give the Executive Branch any power to issue any new debts beyond the amount authorized by Congress.
Only Congress has the power to borrow money. The 14th amendment guarantees that that public debt “authorized by law” will be repaid—in other words, the money properly borrowed under Congress’ approval. It means that any debts the United States possess (up to the point we reach the current debt ceiling of $14.3 trillion) are guaranteed.
We have more than enough money to avoid an immediate default on our debt obligations. The monthly payment on the debt amounts to $29 billion. The US Treasury receives approximately $172 billion in revenues each month from taxes, tariffs, etc. If the debt limit is reached, the US could continue servicing its outstanding debt. Any leftover revenues would then be allocated to any remaining government outlays. The practical result would be about a 44% budget cut. It certainly wouldn’t be pleasant, but it may be necessary to force our politicians to enact true fiscal reform.
What investors would buy debt issued without Congressional approval? Such debt would not be “authorized by law,” and no doubt Congress would pass legislation making it clear that this debt was invalid and would not be repaid. Any attempts by the Obama administration to circumvent the Constitution on the debt limit would cause a constitutional crisis, and give cause to impeach Obama.
The bigger question is: if there is no deal to raise the debt ceiling, how will the Treasury prioritize payments? Without any direction from Congress, Treasury Secretary Timothy Geitner, under guidance of Obama, can decide who to pay, and who not to pay.
When local and state governments are facing budget issues, leaders always talk about how this will mean cuts to police, firefighters, and other vital services, instead of non-essential services and city and county administrators’ salaries. Politicians threaten to hit the citizens where it hurts in order to extort tax increases from the populace, so that budget cuts never materialize.
Our Government will not automatically default if the debt ceiling is not increased. What will happen, though, is that our country will no longer operate at current levels of spending. Obama may direct the Treasury to either stop payments on the debt (which would wreak havoc on the markets), or cut off essential payments to military service members and social security recipients while leaving non-essential services and salaries untouched. The goal would be to hit the taxpayers where it hurts, and then blame Republicans for causing the pain.
If the United States stops paying its debt service or stops making Social Security payments once the debt ceiling is reached, it will not be because the US doesn’t have the money to meet those obligations. It will be because Obama thinks a true default would give him a winning campaign issue.
Urge your Representatives and Senators to stand strong and sign the Cut, Cap, & Balance pledge to enact real fiscal reforms.