The debt ceiling and the 14th Amendment

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The 14th Amendment is more-or-less the Swiss Army knife of the US Constitution.  It defines citizenship, extends constitutional protections to state constitutions, and so on.  Lately, it’s become popular to posit that it also holds the key to avoiding a default of US credit.  Specifically, Section 4 reads

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.

That last bit is not particularly relevant right now.  But the first part (in bold) — it is said — could be.  President Obama could cite that portion of the 14th Amendment and direct the agencies of the United States Government to issue debt pursuant to the existing budget, regardless of whether that debt exceeds the amount authorized under the debt ceiling.  Voila! Crisis averted!  (See, for example, this piece by Jonathan Zasloff in the Washington Monthly.)

This 14th Amendment option is decisive, elegant — and completely irrelevant.

As appealing as it is to dream that the President can resolve this issue with a stroke of the pen, it’s a fantasy or, better, a delusion.  The Constitutional argument may seem reasonable but it’s certainly no slam dunk: reasonable legal minds can differ on its validity.  Whether or not it ever gets litigated before the Supreme Court, it would be argued in the public square forever.  And that’s the clincher: The fact that it would be hotly contested — and not just by reflexive anti-Obamites — renders it pointless.

Why?  Because debate over the debt limit is a crisis for one reason only: It’s pointing up the increasing dysfunction of the American political process.  A default by any debtor is bad for creditors and, eventually, for the debtor as well, as he/she will have to pay a higher interest rate to compensate investors for their lack of confidence in his/her ability to repay.  But a default by the US is infinitely worse.  No one is seriously worried that the US can’t repay its debt.  The market is worried that the US won’t repay it — that our political process has become so broken that we would rather endure a deadlock that cripples our economy than compromise on any principle.  We face not economic bankruptcy but political bankruptcy — a sense that our historic form of government is unequal to the problems we face.

With that in mind, it clearly doesn’t matter if the President waves a magic wand, or a magic signing pen, and declares the debt ceiling obviated.  The mere fact that he would need to do so would indicate that the political process has collapsed — that partisan rancor and madness have overtaken deliberative government.  The market would be further dismayed by the all-too-certain immediate explosion of anger and acrimony — the calls for impeachment, the impassioned bewailing on FOX News, etc.  Many investors might well refuse to lend, not knowing the ultimate legal status of debt incurred under this executive action.

A failure to raise the debt ceiling — no matter how artfully the President and the Treasury dance around it — confirms our transformation into a banana republic.  The market will not look kindly on that.  History, I suspect, will be even harsher.

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