Protecting America's Full Faith and Credit
May 7, 2013
Protecting America’s Full Faith and Credit
By Tom McClintock
Amidst all the controversies gripping Congress, certainly we should all be able to agree that the full faith and credit of the United States – the very trust the public has when it loans money to the government -- should not hang in the balance every time there’s a fiscal debate in Washington.
This week, the House is expected to consider HR 807, to allow a temporary exception to the debt limit solely to assure the full and prompt payment of principal and interest on the debt in the event of an impasse in Washington. That should make perfect sense -- as a practical matter, a family that’s depending on its credit cards to pay its bills had better make sure to pay the credit card bills first.
The executive branch already has considerable powers to protect the nation’s credit, but the administration hasn’t always acknowledged it. The 14th Amendment to the Constitution places the validity of the public debt beyond question. The Government Accountability Office has consistently held that the Treasury Secretary already has “the authority to choose the order in which to pay obligations of the United States” to protect the nation’s credit. This 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.” Even with record deficits, our revenues are roughly ten times greater than our public debt service, so there is no excuse for a debt default.
And yet, when an impasse over the debt limit loomed two years ago, then Treasury Secretary Tim Geithner insisted his only option was to default on the nation’s credit.
Whether this was a crude attempt to hold the nation’s credit hostage to political demands for higher spending or a sincere misunderstanding of his powers and responsibilities is really immaterial. In the future, this measure would order the Treasury Secretary to promptly and fully pay all principal and interest due on the national debt, even providing a temporary exemption from the debt limit in order to do so.
Most states have provisions in their laws or constitutions guaranteeing their debt. Last year in testimony to the Senate, Fed Chairman Ben Bernanke praised these state provisions for maintaining confidence in state and municipal markets and he told the House Budget Committee that a similar measure at the federal level would help to protect against a default.
Is this a tacit suggestion that we shouldn’t meet our other obligations? Does anyone suggest that all the states that have had similar provisions in their Constitutions and statutes for hundreds of years have ever used them as an excuse not to pay their other bills? Of course not.
On the contrary, by providing clear and unambiguous mandates to protect their credit first, they actually support and maintain their ability to pay all their other obligations. For a Congress that is currently borrowing nearly 25 cents on every dollar it spends, the importance of such a provision should be obvious.
With the nation carrying a total debt that exceeds its entire economy, it is imperative that credit markets be absolutely certain that the risk of an American default is non-existent. Without this confidence, rising interest rates could rapidly consume vital government programs and make a mockery of the modest budget savings wrought by the sequester.
Opponents charge that protecting the public credit above all other expenditures would subordinate many other essential obligations like payments to troops or children’s nutrition. But the public credit is what makes it possible to meet every other obligation of government.
A prolonged impasse over the debt limit is something much to be avoided. Postponing payment of any of the government’s bills would be unprecedented and dangerous. Although existing revenues could support critical government responsibilities for a while, distress to other federal employees and contractors would be severe, would rapidly compound, and would eventually threaten core governmental functions. Yet there is a worse fiscal outcome and that is a failure to honor the nation’s debt obligations.
We should remember that if the full faith and credit of the United States is ever compromised, all programs are jeopardized. We must recognize that today our country is divided over fiscal policy and that bitter fiscal disputes in Congress are likely to continue for some time. Financial markets ought to be confident that their Treasury bonds are safe regardless of what political storms are raging in Washington.