As the deadline for a debt ceiling agreement nears, there has been an increase in alternative ideas to the Federal government’s fiscal dilemma. One of these ideas, while slightly radical, presents an interesting Constitutional challenge to the entire debate as discussed by Bruce Bartlett on the Capital Gains and Games blog:
One idea comes from Peterson Institute economist Joseph Gagnon, a former Federal Reserve official. He suggested to me that the Federal Reserve could temporarily buy some of the Treasury’s $300 billion stock of gold. This would allow the Fed to create cash that the Treasury could use to pay its bills until the debt limit is increased, at which time Treasury could simply buy it back. It would be a purely paper transaction that would have no real effect on the price of gold or anything else. The Fed could simultaneously sell an equal amount of securities from its portfolio to prevent the money supply from rising more than it desires.
A more radical solution would be to simply disregard the debt limit altogether on constitutional grounds, an idea I suggested in the Fiscal Times on April 29. University of Baltimore law professor Garrett Epps made a similar suggestion in The Atlantic on May 4.
The essence of the argument involves section 4 of the Fourteenth Amendment to the Constitution, which reads: “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.”
In my view and that of Prof. Epps, this means that the president would have constitutional authority to take extraordinary measures to protect the public credit and prevent a debt default even if it means disregarding the debt limit, which is statutory law subordinate to the Constitution.
Since my article appeared, I have had the opportunity to do further research on this topic and now feel even more strongly that the Fourteenth Amendment trumps the debt limit. I found strong support for this position in a law review article by George Washington University law professor Michael Abramowicz. Writing in the Tulsa Law Journal (“Beyond Balanced Budgets, Fourteenth Amendment Style,” 33:2, Winter 1997, pp. 561-612), he concludes that any government action “making uncertain whether or not a debt will be honored is unconstitutional.” As Abramowicz explains:
“A debt does not become valid or invalid only at the moment payment is due. A debt’s validity may be assessed at any time, and a debt is valid only if the law provides that it will be honored. Therefore, a requirement that the government not question a debt’s validity does not kick in only once the time comes for the government to make a payment on the debt. Rather, the duty not to question is a continuous one. If as a result of government actions, a debt will not be paid absent future governmental action, that debt is effectively invalid. The high level of generality recognizes that instead of referring to payment of debts, the Clause bans government action at any time that affects the validity of debt instruments…. Moreover, there is no such thing as a valid debt that will nonetheless not be honored; a debt cannot be called “valid” if existing laws will cause default on it. So as soon as Congress passes a statute that will lead to default in the absence of a change of course, the debt is invalid (or at least of questionable validity) and Congress has violated the original meaning of the Public Debt Clause.”
To my mind, this means that the very existence of the debt limit is unconstitutional because it calls into question the validity of the debt. So would any other provision of law. That is a key reason why Congress created a permanent appropriation for interest payments at the same time that the Fourteenth Amendment was debated. Previously, Congress had to pass annual appropriations for interest.
It’s interesting to note that those usually demanding Constitutional fidelity are oddly silent on this issue. Should the Administration pursue this course, it will make for political fireworks in a presidential election year, since only Congress would have standing in court to challenge the White House. If Washington can strike a deal or not remains to be seen, but regardless the need for meaningful reform remains.