Welcome to the Vitus Capital Blog!
Notes to myself, possibly of interest to others.
-- Bill Northlich

Tuesday, August 2, 2011

The Vitus 14th Amendment Post

14th Amendment:
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.
An attorney friend asks another attorney friend to comment on the "Can Obama use the 14th Amendment sentence above to ignore the so-called debt ceiling?".

Vitus:  The Hufpo quotes Charles Grassley as saying that if it comes down to it, "The Constitution trumps the [debt ceiling] law, obviously,"

OTOH, here, Lawrence Tribe, Constitutional Law prof. at Harvard, is quoted saying "only Congress has the authority to regulate U.S. debt - any presidential attempt to continue borrowing without congressional approval would therefore violate the constitution".

The (latest) debt ceiling law itself says "The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) may not be more than $11,315,000,000,000, outstanding at one time, subject to changes periodically made in that amount as provided by law through the congressional budget process..."

The debt ceiling law speaks specifically about bonds and notes (obligations with principal and interest), whereas the 14th Amendment clause refers to a broader class of financial obligations.  In fact, it is reasonable to assume that the clause refers to any financial obligation lawfully entered into by the United States.  This is the interpretation of Perry vs. The United States, 1935, which expands on the 14th Amendment clause.  The debt ceiling law says nothing about accounting.  It says nothing about a balanced budget.  It says nothing to the effect that any general financial obligation of the government must conform to a particular discounted cash flow model insofar as such obligation extends into the future.

Given the latter, the debt ceiling law is probably defunct as it stands, because it is impossible to implement (!).

To see this, assume that starting today, no further financial commitments are made by the US other than those in place at this time. These commitments alone will force the US to exceed its current debt ceiling limit in the next month or so.

The constitution says only that "The Congress shall have Power  To Borrow Money on the credit of the United States.".  Prof. Tribe notwithstanding (a big disclaimer!), The Supreme Court in Perry v. US (above) said "By virtue of the power to borrow money 'on the credit of the United States,' Congress is authorized to pledge that credit as assurance of payment as stipulated -- as the highest assurance the Government can give -- its plighted faith. To say that Congress may withdraw or ignore that pledge is to assume that the Constitution contemplates a vain promise, a pledge having no other sanction than the pleasure and convenience of the pledgor."  In other words, it is established precedent that the 14th Amendment clause says we may not reneg on our in-place financial obligations as long as they have been lawfully established.  So, we must borrow.

It seems clear to this simple mind that in our present situation the debt ceiling law is, in the famous words of Nixon Press Secretary Ron Ziegler, inoperative.

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