Even if the House votes in favor of raising the debt ceiling, yet another default drama is likely to occur in six short weeks and inevitably, the drumbeat of ideas for how the White House can creatively escape the tightening debt vise will continue.
Some legal scholars advance the idea that the Civil War-era 14th Amendment gives the President an unfettered ability to ignore the statutory ceiling and continue to issue debt that would be backed by the full faith and credit of the Federal government.
Others find comfort in Article II of the Constitution, which requires that laws be “faithfully executed.” That has been interpreted to mean that the President should spend what Congress has instructed him to spend, even if it means borrowing.
Yet another group of experts insists that the President has inherent emergency powers that allow him to take action in the face of impending calamity.
Even those who believe the debt ceiling is binding have a plan: The Treasury Department should prioritize its payments, in order to continue to make interest payments on outstanding debt after October 17, when the last borrowed dollar arrives.
Put simply, those ideas are fantasies that may seem appealing within cloistered ivory towers but have no grounding in practical reality.
They constitute truly nuclear options that would have disastrous consequences, potentially ranging from a massive economic downturn to a constitutional crisis.
Take, for example, the idea that the President could – one way or another – get around the debt limit and have Treasury continue to borrow. A dark cloud of lawsuits and impeachment proceedings would immediately descend.
The recent stock market swoon would accelerate into a free-fall. Consumers and businesses would pull back on their spending and investments, exacerbating our economic challenges and perhaps plunging the country back into recession. The reverberations would be felt globally.
Who would buy these newly issued Treasuries under such circumstances? Many investors would simply stay away, on the grounds that the inevitable gyrations were an unattractive complexity, particularly with so many unblemished Treasuries available for purchase.
Even if investors were convinced that their legality would be ratified, they would certainly be sold at premium interest rates, adding costs to an overburdened Federal purse.
The contrary idea – that Treasury would halt its borrowing but prioritize its use of cash to avoid a debt default – is equally flawed. For one thing, its right to put one obligee ahead of another is also legally uncharted. For another, its mechanical ability to do so remains untested.
Perhaps most importantly, I can’t imagine how the President would explain that he was paying interest on our debt – some of it to Chinese and other foreign investors – but not paying its workers or sending timely checks to food stamp or Social Security recipients, a quarter of whom exist solely on those payments.
In addition, “prioritization” –whatever some Republicans argue — is just default by another name. In the corporate world, failing to make good on any payment can trigger bankruptcy just as surely as missing interest or principal on debt.
Finally, living within the debt limit would almost surely result in an immediate recession as the drastic resulting cutbacks in Federal spending rippled through the economy.
The Obama Administration appears to recognize the folly of these various gimmicks, repeatedly ruling most of them out. While it has played slightly coy as to which bills it would pay if the debt limit were reached, I can’t imagine it pursuing the prioritization path.
So sorry, Virginia, but there is no debt limit Santa Claus, no alternative but for our lawmakers to face up to the fiscal challenges and make some tough decisions.
Those choices should include a long-term budget deal so we can stop lurching from crisis to crisis. The elements of such a deal are not in doubt: restore some funding to discretionary domestic programs, which have suffered under the guillotine of sequestration; reform Medicare and Social Security to make them financially sustainable; and add revenues – ideally through tax reform – to put Washington’s finances are a sound long-term basis.
I recognize that these principles are easy to articulate and hard to codify. But it’s time for Congress to start to earn its pay by tackling these tough issues.
During the 2011 debt ceiling near disaster, some pundits advanced the notion that the President could use a legal loophole to issue a trillion dollar coin.
Fortunately, cooler heads prevailed and that crazy notion was never pursued. It’s time to put the latest round of equally preposterous ideas next to it on a shelf.
As President Obama said at his news conference on Tuesday, “there are no magic bullets here.”
