Our political system seems sick. Or, it seems to be broken beyond repair. However one looks at it, our constitutional architecture seems unable to save us from the ravages of a political party gone wild, from politicians with fire in their eyes and torches in their hands.
Yet, this morning I heard a very learned man tell Americans that our system of government was designed to produce—and then fix—what we are seeing today. Jon Meacham, who is among other things a Pulitzer Prize-winning author, said on MSNBC that what Tea Party Republicans are doing is not unprecedented—he cited the old “Southern Democratic caucus” that held up civil rights legislation in the U.S. Senate for part of the twentieth century—and in fact what these Republicans are doing has the posthumous blessings of, uh, James Madison, who would say if you don’t like ’em, “vote ’em out.”
Yikes. If James Madison meant to design a system in which a crazed minority of lawmakers on one side of the Capitol could severely damage the economic well-being of the entire country by forcing the government to default on its obligations, then James Madison was a bit crazed himself.
But no matter what one’s view of Madison or the other Founders is, no matter what one thinks of the design of our system of governance, as the National Journal’s Kristin Roberts points out, we fortunately have a very clear instruction in the Constitution, as it was thankfully amended in 1868, about what to do regarding raising the debt ceiling. Section 4 of the Fourteenth Amendment reads:
Section 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.
Roberts writes:
Have Republicans forgotten that they too must abide by the Constitution?
The document is explicit in its instruction to America’s federally elected officials – make good on the country’s debts. “The validity of the public debt of the United States,” the 14th Amendment states, “shall not be questioned.”
This is not some arcane biblical reference that needs to be translated from scraps of parchment. In fact, its purpose and intent are fairly well documented.
The amendment is the product of a post-Civil War Congress that wanted to be sure the country would not be saddled with Confederate debt, and that the debts of United States would be honored. Then, as now, this promise written into the Constitution offered creditors confidence that lending to America – indeed, investing in America – would be safe.
“Every man who has property in the public funds will feel safer when he sees that the national debt is withdrawn from the power of a Congress to repudiate it and placed under the guardianship of the Constitution than he would feel if it were left at loose ends and subject to the varying majorities which may arise in Congress,” argued Sen. Benjamin Wade, a Republican supporter of the amendment.
Indeed.
Some conservatives these days claim that there’s nothing to this debt ceiling business, that Democrats are just trying to scare everyone (never mind that Ronald Reagan tried to scare everyone too). Some, like a very strange senator named Tom Coburn, pull stunts like tearing up a symbolic credit card on the floor of the Senate, saying, “I think it’s time we quit borrowing money,” as if that’s all there is to it. As if not raising the debt ceiling is like taking the credit card from an irresponsible teenager.
Such ignorance, such dangerous ignorance, should not have a home in the brain of a sitting U.S. senator or any public official. But it does. And such ignorance has infected the American people, who, as a new poll demonstrates, are as confused about the debt ceiling as Tom Coburn is. Get this:
More than twice as many Americans believe lifting the limit means authorizing more borrowing “for future expenditures” than believe it means “paying off the debts [the federal government] has already accumulated”—62 percent to 28 percent, respectively.
The reality is that lifting the debt limit allows the Treasury Department to borrow money to pay for bills that Congress has already rung up.
When one looks at the composition of that 62% of Americans who don’t understand how the debt ceiling works, one finds that Republicans are more ignorant than Democrats:
Nearly three in four Republicans, 73 percent, said the debt limit was for “future expenditures,” but a majority of Democrats, 53 percent, also agreed. Independents, at 62 percent, fell in between the two major parties.
Think about that. Three out of every four Republicans you meet on the street don’t have the slightest idea what is going on right now. And half the Democrats don’t either. Scarier than all that, though, is that 54% of Republicans polled think the debt ceiling deadline “can pass without major economic consequences.”
Yep, no big deal. A default here, a default there, and pretty soon the economy will get used to all the chaos and Republicans can go back to the echo chamber and tell themselves how brave they were for calling the bluff of Democrats—and economists.
Geeze.
Kristin Roberts notes the obvious that should President Obama unilaterally raise the debt ceiling without congressional authority, Republicans in the House will impeach him. But she makes another point about impeachment that the President should at least abstractly consider:
…others argue that if the House does nothing, and Obama refuses to step in, impeachment would then indeed be appropriate.
“Obama should be impeached if the Congress allows a default and he does nothing,” said Sean Willenz, a Princeton University history professor who has argued the merits of 14th Amendment action. “The president has taken a solemn oath to preserve, protect, and defend the Constitution of the United States. If he does not act in response to a blatant violation of the Constitution, then he will have violated his oath, and deserve to be impeached.”
Mr. Obama has said more than once that the Fourteen Amendment option that so many liberals and others are urging him to use is not a viable one as far as he is concerned. And because people should know what the President’s mindset is on this serious matter, I will here post his entire response to a question asked of him on Tuesday during his press conference:
QUESTION: Do you think you might have emergency powers that you could use after any default situation?
PRESIDENT OBAMA:
We have used a lot of our emergency powers. Jack Lew has used extraordinary measures to keep paying our bills over the last several months. But at a certain point, those emergency powers run out, and the clock is ticking. And I do worry that Republicans, but also some Democrats, may think that we’ve got a bunch of other rabbits in our hat. There comes a point in which, if the Treasury cannot hold auctions to sell Treasury bills, we do not have enough money coming in to pay all our bills on time. It’s very straightforward.
And I know there’s been some discussion, for example, about my powers under the 14th Amendment to go ahead and ignore the debt ceiling law. Setting aside the legal analysis, what matters is, is that if you start having a situation in which there’s legal controversy about the U.S. Treasury’s authority to issue debt, the damage will have been done even if that were constitutional, because people wouldn’t be sure. It would be tied up in litigation for a long time. That’s going to make people nervous.
So a lot of the strategies that people have talked about — well, the President can roll out a big coin, or he can resort to some other constitutional measure — what people ignore is that, ultimately, what matters is what do the people who are buying Treasury bills think?
And, again, I’ll just boil it down in very personal terms. If you’re buying a house and you’re not sure whether the seller has title to the house, you’re going to be pretty nervous about buying it. And at minimum, you’d want a much cheaper price to buy that house because you wouldn’t be sure whether or not you’re going to own it at the end. Most of us would just walk away, because no matter how much we like the house, we’d say to ourselves, the last thing I want is to find out after I’ve bought it that I don’t actually own it.
Well, the same thing is true if I’m buying Treasury bills from the U.S. government. And here I am sitting here — what if there’s a Supreme Court case deciding that these aren’t valid, that these aren’t valid legal instruments obligating the U.S. government to pay me? I’m going to be stressed — which means I may not purchase them. And if I do purchase them, I’m going to ask for a big premium.
So there are no magic bullets here. There’s one simple way of doing it, and that is Congress going ahead and voting. And the fact that right now there are votes, I believe, to go ahead and take this drama off the table should at least be tested. Speaker Boehner keeps on saying he doesn’t have the votes for it, and what I’ve said is, put it on the floor, see what happens, and at minimum, let every member of Congress be on record. Let them vote to keep the government open or not, and they can determine where they stand, and defend that vote to their constituencies. And let them vote on whether or not America should pay its bills or not.
And if, in fact, some of these folks really believe that it’s not that big of a deal, they can vote no, and that will be useful information for voters to have. And if it fails, and we do end up defaulting, I think voters should know exactly who voted not to pay our bills so that they can be responsible for the consequences that come with it.
There. You now know for sure what the President thinks about using extraordinary means to do what the Constitution for sure requires Congress to do, if not the President acting alone.
And, I must say, he is being quite Madisonian about it.
The Erstwhile Conservative: A Blog of Repentance 
ansonburlingame
/ October 9, 2013This cannot go unchallenged. Failure to borrow more money by the Treasury department does NOT mean an automatic default on debt payments. Nor does it mean that SS or Medicare or federal pensions must go unpaid.
Failure to allow the federal government to borrow more money does mean that the federal govenment must CHOSE to pay that which is obligated, debt, laws, etc. until there is no money left in the treasury accounts. Money still comes into the Treasury every month. All the withholding taxes are just an example. At the end of a year some $2.5 Trillion in such monthly taxes will flow into the federal government, and month to month as well. That means there IS money for the federal government to spend but a reprioritization of what to spend it on must be legislated by Congress. Pay this, don’t pay that can be done and should be done, whether using borrowed money or not.
As for a careful reading of the 14th amendment, well I can read, can you. It MANDATES that debt payment and pensions for those that have…… MUST (Constitutionally) be paid. OK, pay it. But there is NO constitutional mandate that I am aware of that says every bill passed by Congress MUST be paid if there is no money to pay it, food stamps as only an example. There is a difference between MUST and SHOULD, constitutionally.
I may be wrong, constitutionally, but I sure don’t see where from my own reading of that document. What this all boils down to is politicians must decide how to use whatever money becomes available after a refusal to act by Congress to raise the debt limit. Sure that is a big deal, a huge deal, with everyone scrambling for their piece of the pie with what still is there to be used. But it does not have to be a debt default for sure. Something else would have to default instead.
I agree that federal debt payments MUST, by the Constitution, be paid. I do not agree that the Constitution DEMANDS that Food stamp payments for only an example must be paid if there is no money to do so in the bank.
Instead of scare tactics being used, we should be arguing over what “must” be paid given far less money in the bank (but never zero) on a given day. I have already told my mortgage lender what I will do if federal checks start being withheld. I will NOT pay my mortgage any month such checks are not sent to me. Once they start flowing again, I will then catch up in the future.
My guess is millions of people will have to do the same thing!! I also submit BOTH parties are to blame for this mess of historical proportions, BOTH parties, neighter of which will give much at all, for now. I did propose a “Grand Compromise” on my own blog, but so what as well.
Anson
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Herb Van Fleet
/ October 9, 2013Anson,
What you are suggesting is what local governments have been doing for years. For the payment of bills, they use what they call a “warrant.” Technically, it’s a “no funds warrant.” It means the payee will only get paid to the extent of funds being available. In fact. I’ve been paid by warrants over the years for the work I’ve done for various municipalities. Never had a problem though.
Here’s what Wikipedia says about them: “In government finance, a warrant is a written order to pay that instructs a federal, state, or county government treasurer to pay the warrant holder on demand or after a maturity date. Such warrants look like checks and clear through the banking system like checks, but are not drawn against cleared funds in a checking account (demand deposit account). Instead they may be drawn against “available funds” or “out of fund 0027” so that the issuer can collect interest on the float or delay redemption. If the warrant is conditional on funds being available, the warrant is not a negotiable debt instrument. In the U.S., warrants are issued by government entities such as the military and state and county governments. Warrants are issued for payroll to individual employees, accounts payable to vendors, to local governments, to taxpayers receiving tax refunds, to recipients of unemployment benefits, and to owners of unclaimed money. A warrant differs from a check in that the warrant is not drawn on a checking account, is not necessarily payable on demand, and may not be negotiable.”
So, your method would require the U.S. treasury to issue warrants instead of checks. But because the cash flowing in to the Treasury at any particular time doesn’t match up with the payments going out at any particular time, the use of warrants would be an administrative nightmare, not to mention costly, not to mention a source of mass chaos.
Anson, don’t be fooled by the ignorant Tea Partyers. If bills are paid only from available funds, and our commitments are about 1/3rd more than estimated revenues, then, by definition, there are about 1/3rd of our obligations that we will default on. THEREFORE, THERE HAS TO BE A DEFAULT!
And how would you decide which programs to default on? And can the 535 members of Congress agree on what they will default on? No, the Tea Party is living in a fantasy world.
So, tell your conservative buddies to get educated and quit making the gross misrepresentations about the dangers of default. They don’t know what the hell they’re talking about. They’re like a bunch of 5 year-olds playing with fire and I for one don’t what to get burned. And neither do the 10’s of millions of other Americans who are recipients of federal money – including you.
Herb
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Jane Reaction
/ October 9, 2013On the debt ceiling, this phrase, derived from the 14th Amendment-“the national debt is withdrawn from the power of a Congress to repudiate it” seems clear enough to me, and if we are to honor the Constitution, then the President can go around Congress on that.
OTOH I can see the strategy of having a complete vote in the House to smoke out the louts. The problem with that is that innocent people are suffering.
We can talk strategy and point fingers, but inaction is causing Americans to not receive food, medical attention, and other services, while it keeps many citizens unable to work. The Democrat senators were ready, but the Farm Bill died last week because the GOP senators refused to participate.
It is NOT true that “both sides do it”. The GOP created this outrage. By themselves, the radicals have taken us to the edge of the falls. It is inexcusable.
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ansonburlingame
/ October 10, 2013Herb,
I am not aware of payment by warrents. But that is not my “solution”, for sure. If some Senators are to be believed, some $250 Billion per month flows into the Treasury. Debt interest payment is about $20 Billion per month. Do the math and I, at least see some $230 Billion each month available to the federal government to dispurse as it sees fit.
If your 1/3rd is correct, that means the federal government NEEDS about $460 Billion per month (seems rather high) to have available to meet all commitments, a deficit of about $130 Billion per month, after debt payments are paid.
Sure it is a huge impact. I don’t call for such to happen. I believe a compromise is available, one that makes sense to me at least and one that accounts for long term needs while starting to put a hold on continuing unfunded liabilities. Sure would be nice to not have a debt ceiling drill every year or so, would it not?
I was surprised that Jane Reaction did not call for me to give up my “plush” military pension. After all I am just a “U-Boat Commander” that deserves not a penny for my service when compared to the needs of all the poor in the land, right. I suppose he, she or it would ask the same from Duane and Jim, give up their “plush pensions” right now.
My compromise does not require that however. But it would mean that an 18 year old now joining the military would not qualify for a “plush” pension after 20 years of service, with FULL retirement pay starting at age 38, which is the case today. It would also mean that my mid-40’s kids would not have a “plush” Medicare program at age 65, either. They would have to wait until about age 75 to receive such HC payments!!
My point is rather simple, Herb. IF we start now, the federal government can meet its future commitments, in the future and still provide the security promised to older folks and really needy folks today. But if we keep up with this ponzi scheme of promising the “world” for the future, then the default will hit everyone right between the eyes, in the future and the Great Depression will look like a cake walk in the coming years.
A Congressional action to limit borrowing NOW is far different from a situation where NO lenders are around, tomorrow!!
But of course that does not resonate with most voters, today. They want theirs and they want it NOW, forget the myth of some balance sheet showing unfunded liabilities right now that will cause a collapse of “everything” if they become reality in the future.
Anson
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Herb Van Fleet
/ October 10, 2013Anson,
First, my apologies for the technical stuff like warrants. I spent 11 years heavily involved with municipal finance and I sometimes forget others don’t have that level of understanding.
But, yes, no-fund warrants would have to be used if the U.S. went on a pay-as-you-go plan. That’s because the “full faith and credit” protection would no longer be available under the plan you suggest.
As to the 1/3rd more outgo than income, it turns out that for 2012, it should be 31%, which I think is close enough for government work. Anyway, for 2012, the average receipts were 204.2 billion/month and outlays averaged 294.8 billion/month. That’s a shortage of 90.6 billion each an every month. Of course, there are peaks and valleys from month to month.
Now, you write “IF we start now, the federal government can meet its future commitments, in the future and still provide the security promised to older folks and really needy folks today. But if we keep up with this ponzi scheme of promising the “world” for the future, then the default will hit everyone right between the eyes, in the future and the Great Depression will look like a cake walk in the coming years.”
Clearly, that is a mathematical impossibility. You can’t pay your obligations when your income is less than needed. People don’t like hot checks. You can pay interest on the federal debt but if you fail to pay any of the other legally binding obligations, you are still in default.
Anyway, our total unfunded obligations now are north of 200 trillion. Unfunded obligations are the excess cost of future commitments over future revenues projected over 75 years and discounted to today’s dollars. These commitments include Social Security, Medicare, Medicaid, Part D drugs, future deficits, veterans benefits, federal pensions, and various welfare programs, among others. And those unfunded obligations are in addition to the 17+ trillion in current debt.
If the Federal Gov’t keep it’s books using generally accepted accounting principles like the private sector, that 217 trillion in obligations comes out to 1,276% of GDP.
So, as you can see, we’re in the crapper already. We are, in fact, insolvent and bankrupt. And I see today that Congress is just going to kick the ball down the road again. Problem is, they are out of road and they just don’t want to face it. But then who would. Much easier to stay in denial.
Herb
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Jim Wheeler
/ October 11, 2013This has been an enlightening conversation, thanks to all.
Agreed, the debt and the annual budget deficit are both significant problems. Forgive me for being simplistic, but government finance is not the same as a family budget. All governments operate on debt – lots of it – and it generally works just fine. Just before the Tea Party manufactured this latest double crisis things were going swimmingly. The budget deficit was being whittled down, unemployment was coming down, Wall Street was setting new records, and people were buying smart phones, tablets, and new cars and trucks like crazy.
As I see it there are two ways to deal with the debt problem. One is to ease out of it by ending our foreign wars and nation-building and reforming our double-expensive healthcare system while maintaining our status as a global island of financial stability. The other is to declare an immediate financial crisis, scare the hell out of everybody, and start running our finances as though we are a family whose checking account is running out. I know which I would choose. In the meantime, thanks to Duane’s post here I am grateful to know we have a president who understands not only the technical aspects of the problem, but the psychology of it.
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