The worst option of all

Byline: | Category: 2012, Economy, Taxes & Spending | Posted at: Wednesday, 27 July 2011

James Clyburn, the third-ranking Democrat in the House, along with a host of his colleagues, have urged the President that if the choice is between a short-term debt ceiling deal and a constitutionally-questionable maneuver invoking powers supposedly granted by the 14th Amendment, that he should choose the latter.  Clyburn’s reasoning?

“I believe that something like this will bring calm to the American people and will bring needed stability to our financial markets . . . “

Calm?  Stability?  Really?

There are horror-story scenarios out there about what a downgrade of US Treasury Debt from AAA might bring to our economic system.  Who knows, they might come true.  But if you really want an economic horror story, take Rep. Clyburn’s advice.

It isn’t just Clyburn.  Over in the Senate, Barbara Boxer had this to say, “

“As far as the 14th Amendment is concerned, I urge to get their Constitution and read it.  [sic]  It says the debts of the United States shall not be questioned.”

So let’s look at that 14th Amendment and see what it says:

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.

See those words in bold?  Sen. Boxer conveniently left them out of her quotation.  So what does “law” mean?  Well, according to Article I, Section VIII, this is who makes ”laws.”

The Congress shall have the power . . . To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

Damn!  That seems pretty all-inclusive about which branch of the federal government it is that is empowered to “make all laws.”  And it isn’t the President.

But wait!  Isn’t Article I, Section VIII, the very part of the Constitution which, in the view of Clyburn, Boxer, et al., that the 14th Amendment invalidated?  That, after all, is the same Section which originally granted Congress the power “to pay the Debts,” and “To borrow money on the credit of the United States.”

Their argument is that since the 14th Amendment came nearly a century later, it supercedes Article I (and who knows what else of the remaining articles and the previous other 13 Amendments) that came before it.

But, I’ve got bad news for those who think that way.  If Section 4 of the 14th Amendment takes from Congress control over what is the lawful debt of the United States*, Section 5 gives it right back:

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

Game.  Set.  Match.  There is absolutely nothing in the Constitution, in Case Law, or in Common Sense that gives the President the power to exercise the authority that Clyburn, Boxer, and a whole host of ignorant Democrats say he has. 

Luckily for America, President Obama has ignored his frivolous advisors.  And to understand why this is lucky for America, I bring you a real economic horror story:

The second day of August dawns without an increase in the nation’s debt limit.  President Obama orders Treasury Secretary Timothy Geithner to proceed with planned auctions of the nation’s debt and to pay all bills as authorized by spending rules enacted by Congress and signed by the President. 

Republicans revolt.  Representative Ron Paul personally files suit.  The House approves a resolution declaring that any debts incurred above the previous limit are unlawful, null, and void.  A Federal Court issues an injunction preventing the next debt auction, but an Appeals Court stays the injunction and lets the auctions proceed.

The Ratings’ agencies lower the nation’s bond ratings to AA and leave the country on watch for further downgrades.  Why?  Because they evaluate levels of investment risk, not the riskiness of gambles.   And what they see is that an investment in US Treasury Debt has become a gamble.  After all, how do you price the probability of a Supreme Court decision?  It’s an all or nothing proposition:  the courts find the debt lawful and investors get their money back with interest; or the courts find the debts unlawful and the 14th Amendment prevents their repayment, meaning investors get nothing.  That’s not something that they teach you how to model in Business School. 

The first debt auction sees an increase of a few points.  But with each successive one–and remember, the Treasury has two or three auctions a week to roll over existing debt come due–the yield climbs.  It isn’t long until the 10-year yield is well over 4% and still climbing, and that’s when the CBO gets antsy about a revised budget forecast.  That precipitates another ratings downgrade and even higher yields.  Of course, with higher yields, comes the need for more debt to pay down higher interest rates.  And then add in all the secondary effects that Mr. Williamson highlights, and you can envision a complete economic tailspin. 

Once all parties realize that the entire United States Treasury market has become a multi-hundred-billion-dollar game of double-or-nothing with an unpredictable Supreme Court assuming the role of dealer, the formerly most risk-free asset in the world will make lottery tickets look like a rational investment.

This isn’t what “calm” and “stability” looks like.  And that is why the 14th Amendment option advocated by James Clyburn and Barbara Boxer is the worst option of all.

*Just to clarify:  Even without Section 5, there is nothing in the 14th Amendment that removes from Congress the power to make laws pertaining to the debt.  But the fact that there are people who have sworn to uphold the Constitution who can’t even be bothered to read the very next sentence after the section they quote, I thought I’d point out here how insipient their argument really is.

Share this post:

2 Responses to “The worst option of all”

  1. SLM Says:

    “authorized by law” refers to debt already incurred on behalf of the US from previously enacted laws. the current congress does not have the power to “default” on money already borrowed.

    Ed: Who said anything about “Congress” defaulting? The decision about what bills to pay belongs to the Executive branch, so long as those bills don’t exceed what Congress authorized for that particular line item. The President, per the 14th Amendment, doesn’t have the power to default on those debts. He also doesn’t have the power to authorize new debts.

  2. danny Says:

    Bob,

    I just don’t believe any of the doomsday scenarios the libs are peddling. I didnt believe the doomsday scenarios that Bush peddled back in the tarp debate either. Democrats social policies have ruined the lives of untold amounts of people. GOP pols on the other hand will flat out lie to your face about cutting spending. Im just disgusted with all of them. People forget sometimes that we may not be here next Saturday or tomorrow for that matter but it certainly won’t be because we didn’t raise the debt ceiling….