How Obama Can Prevent Another Debt-Ceiling Crisis

Some Democrats want the president to raise it by himself. But the 14th amendment offers him a much better strategy.

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As the country nears the fiscal cliff, it's deja vu all over again. Republicans are now asserting that they will refuse to raise the debt ceiling if they don't get their way in the negotiations. In response, some Democrats want President Obama to invoke the 14th Amendment and raise the debt ceiling unilaterally. What they don't understand is that doing so is not only legally dicey, it is also completely unnecessary for Obama to prevail. Obama's correct--and constitutional--response to Republican intransigence is the same as Bill Clinton's before him: a replay of the 1995 government shutdown. If Republicans force that confrontation, they will lose, just as they did before.

Republicans are in a pretty poor bargaining position in the fiscal cliff negotiations. They know that if President Obama simply does nothing, the Bush tax cuts will expire on January 1st and defense spending will be cut. At that point Obama can propose lowering taxes for the middle class--but not the rich--and raising defense spending as part of new grand bargain on taxes and spending. The Republicans will be hard pressed to say no. After all, if they refuse to play ball, all they will get is higher taxes and cuts to defense. That's not winning.

As a result, House Speaker John Boehner has tried to return to the same strategy he used in the summer of 2011. He wants to tie the debate over taxes and spending to an increase in the debt ceiling. It's important to understand that raising the debt ceiling does not increase spending by itself. It merely allows the Treasury to issue new government bonds to pay for monies that Congress has already appropriated by law.  Essentially, refusing to raise the debt ceiling after you've already appropriated expenditures is like telling your creditors that you won't pay debts you've already contracted because you have conveniently decided to run out of money.

The government is on course to reach the current cap on the debt ceiling of approximately 16.4 trillion dollars in February or March of 2013.  The Republicans' threat is the same as they made in 2011. Unless President Obama agrees to spending cuts and tax policies the Republicans like, they will refuse to raise the debt ceiling and the United States will go into default.

In response, President Obama has made two statements.  First, he has made clear that he will refuse to bargain over the debt ceiling with Republicans. (After all, until 2011, the debt ceiling was raised regularly and without much controversy in both Democratic and Republican administrations.) Second, Obama's press secretary, Jay Carney, has explained that the president believes he does not have the authority to increase the debt limit and issue new bonds unilaterally.

Some Democrats are concerned: they believe that the president should threaten to raise the debt ceiling and that he has thrown away his most effective weapon in the confrontation.

They are wrong.

Section 4 of the Fourteenth Amendment provides that "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." Its purpose was to prevent Southern Congressmen and Senators from trying to hold payment of the nation's debts hostage in order to get their way on Reconstruction policies.  The point of Section 4 was to put this sort of hostage-taking beyond ordinary politics. The framers of the 14th amendment did not want future politicians to threaten to destroy the country's finances by refusing to pay the country's debts in order to win political concessions from their opponents. After all, once politicians did so successfully, they would try it over and over again and it would become a normal feature of politics.  That is precisely what we are seeing now.

If Congressional Republicans are threatening to let the nation to default on its debts if Obama doesn't agree to their demands, they are violating the Constitution.  And the president should call them out for such an outrageous demand. But does that mean that the president can raise the debt ceiling himself to remedy the violation?

Not so fast. Article I, section 8 of the Constitution gives Congress, not the president, the authority to borrow on the credit of the United States. Even so, under section 4 of the Fourteenth Amendment the president has an independent constitutional obligation not to allow the validity of the debt of the United States to be put into question. That means, at the very least, that the president must make sure that interest payments continue on existing federal bonds and similar obligations.  He must assure bondholders that they will continue to get paid even after the debt ceiling is reached.

If the president follows his constitutional obligations, then some government operations will not get funded because payments to the bondholders must come first. That means a partial government shutdown, with more and more of the government closed as the president continues to pay the bondholders.

We've seen this movie before. Once government offices close and government checks aren't issued, the public will complain loudly, the markets will tumble, and Congress will eventually have to give in, just as it did in the winter of 1995. The public will rightly conclude that Congress is to blame, because it was Congress, and not the president, who tried to hold the nation's economy hostage.

The president's obligation to pay the bondholders first-- and not the power to ignore the debt ceiling--is how the Fourteenth Amendment helps the president resolve any debt ceiling crisis. All he has to do is follow the Constitution and he will come out on top. He doesn't have to raise the debt limit at all.  Instead, he must calmly explain to Republicans in advance what he will do -- and not do -- if they remain intransigent. He must explain to them that their course of action will inevitably lead to a government shutdown, and that the shutdown -- and its associated costs to the country -- will be on their heads.

In fact, if Obama did announce that he would ignore the debt ceiling -- as some Democrats would like -- he would actually take the pressure off Congressional Republicans. Then they would have an incentive to refuse to raise the debt ceiling, let Obama take the political heat for issuing new bonds, and then attack Obama's decision in the courts. They might even use his action as an excuse to try to impeach him.

To be sure, if the crisis continues long enough that the markets have completely melted down and there is not enough money even to pay the bondholders, the president might have a constitutional obligation to issue new debt to satisfy the Fourteenth Amendment. But by then the world economy would be in a complete shambles; it is far more likely that Congress would raise the debt ceiling well before that point.

The moral of the story is simple: The best way for Obama to head off Republican threats of another debt ceiling crisis is to make his position clear at the outset. First, he should explain that he won't bargain with hostage takers. Second, he should make clear that he won't let Congress off the hook by raising the debt ceiling himself. Obama has now made both of these statements publicly. Third, he should state clearly that if Congress does not raise the debt ceiling he will continue to pay all of the nation's debts as required by the Constitution. Fourth, he should make clear that he will continue to do so even if this means curtailing or shutting down government functions until Congress comes to its senses.

If Obama does all these things, he will be in the strongest possible bargaining position. And he will also be following the Constitution.