The Debt Crisis
October 14, 2013
The debt limit exists for a simple reason: to assure that public debt isn’t recklessly piled up without Congress periodically acknowledging it and addressing the spending patterns that are causing it. If a debt limit increase is supposed to be automatic, as the President suggests, there really is no purpose to it.
A new dimension has now appeared in this discussion. Unlike every one of his predecessors, this President has vowed that unless Congress unconditionally raises the debt limit, the United States will default on its sovereign debt.
But a failure to raise the debt limit would not by itself cause the nation to default. The Government Accountability Office has consistently held that the Treasury Secretary has “the authority to choose the order in which to pay obligations of the United States” to protect the nation’s credit. Such authority is inherent in the 1789 act that established the Treasury Department and entrusted it with the “management of the revenue” and the “support of public credit.” The affirmative duty of the Treasury Department to do so is underscored by the 14th Amendment.
Our revenues are more than ten times our debt payments, so paying the debt first to prevent a sovereign default is well within the financial ability of the federal government – and indeed, it is a fiscal imperative.
Earlier this year, the House passed HR 807, which not only explicitly requires the payment of the national debt in the case of an impasse over the debt limit, but even allows the President to exceed the debt limit itself in order to protect the nation’s credit.
That measure languishes in the Senate under the threat of a Presidential veto.
Protecting the sovereign credit by prioritizing payments would mean delaying paying other bills – which is untenable, unthinkable and something much to be avoided. But it would not imperil the nation’s sovereign credit. Only the President can do that.
The House leadership met with the President last week and offered to extend the debt limit until November 22nd with no strings attached. The President refused. Senate Republicans offered a six month extension, but the Senate Democratic leader refused.
What the President threatens to do would be catastrophic and unprecedented. The full faith and credit of the United States is what gives markets the confidence to loan money to the federal government. Even a credible threat of default – exactly the kind the President is now making -- could have dire consequences to a nation that now owes more than its entire economy produces in a year.
So where do we go from here?
Republicans have miscalculated on two key assumptions: First, that the Democrats would negotiate the issues that divide the country; they have not. Second, that Democrats would seek to minimize the suffering caused by the impasse; they have not.
Given the ruthless and vindictive way the shutdown has been handled, I now believe that this President would willfully act to destroy the full faith and credit of the United States unless the Congress acquiesces to all of his demands, at least as long as he sees political advantage in doing so. His every statement and action is consistent with this conclusion.
If the Republicans acquiesce, the immediate crisis will quickly vanish, credit markets will calm and public life will return to other matters.
But a fundamental element of our Constitution will have been destroyed. The power of the purse will have shifted from the representatives of the people to the executive. The executive bureaucracies will be freed to churn out ever more outlandish regulations with no effective Congressional review or check through the purse. A perilous era will have begun, in which the President sets spending levels and vetoes any bill falling short of his demands. Whenever a deadline approaches, one house can simply refuse to negotiate with the other until Congress is faced with the Hobson’s choice of a shut-down or a default.
The nation’s spending will again dangerously accelerate, the deficit will again rapidly widen, and the economic prosperity of the nation will continue to slowly bleed away.
This impasse may have started as a dispute over a collapsing health program but it has now taken on the dimensions of a Constitutional crisis.
Yesterday in Washington, a group of America’s veterans rose up to take a stand against these constitutional usurpations. I believe the salvation of our nation now depends on the American people joining them.