A New York Times editorial this week pointed out how the world is increasingly losing confidence in the U.S. government’s ability to repay its debt. Another piece says the “stalemate in Washington” over raising the debt ceiling, which would be required for the government to borrow even more money to pay back the money it has already borrowed, is “producing nervous ripples” across the globe.
Five years after the financial crisis, the fear is that “this time” their nations will become “victims not of Wall Street’s excesses but of a political system in Washington”, the Times states. Except that the 2008 financial crisis was a consequence of the political system in Washington, from the Federal Reserve’s inflationary monetary policy and government policy of encouraging homeownership blowing up a housing bubble to the promise of taxpayer bailouts incentivizing the banks’ riskier behaviors.
Further down the page, we come to it. The Times quotes Jean-Paul Fitoussi, an economist at the Institut d’Études Politiques de Paris:
“Perhaps we have not completely understood the American Constitution, and the effective power of the president is not as strong as we believed,” he said. “And maybe it’s because Obama is not using his constitutional power very well.”
The weekend military strikes on terrorist targets in Libya and Somalia are a perfect indication that the American government can act when its direct interests are at stake, said Ms. Dormandy of Chatham House.
The implication is that Obama has the constitutional authority to raise the debt limit without the Congress. After all, he launched a war on Libya without the Congress, so why not? Except the fact that Obama launched a war in Libya doesn’t mean he actually had constitutional authority to do so. It was patently unconstitutional, a blatant violation of his oath of office.
The Times nevertheless bombards readers with this idea, even more explicitly elsewhere. The argument is that the Executive has the authority under the 14th amendment to raise the debt ceiling.
Sean Wilentz, a professor of history at Princeton University, argues in an op-ed:
THE Republicans in the House of Representatives who declare that they may refuse to raise the debt limit threaten to do more than plunge the government into default. They are proposing a blatant violation of the 14th Amendment, which states that “the validity of the public debt of the United States, authorized by law” is sacrosanct and “shall not be questioned.”
Except that the Republicans aren’t questioning the existing debt. They are just pretending to be opposed to incurring even more of it. The Executive Branch itself has repudiated the 14th Amendment argument:
Yet the Obama administration has repeatedly suppressed any talk of invoking the Constitution in this emergency. Last Thursday Jay Carney, the White House press secretary, said, “We do not believe that the 14th Amendment provides that authority to the president” to end the crisis.
But Wilentz rejects the administration’s own conclusion, arguing:
These assertions, however, have no basis in the history of the 14th Amendment; indeed, they distort that history, and in doing so shackle the president. In fact, that record clearly shows that Congress intended the amendment to prevent precisely the abuses that the current House Republicans blithely condone.
Congress passed the 14th Amendment and sent it to the states for ratification in June 1866. Its section on the public debt began as an effort to ensure that the government would not be liable for debts accrued by the defeated Confederacy, but also to ensure that its own debt would be honored.
That was important because conservative Northern Democrats, many of whom had sympathized with the Confederacy, were in a position to obstruct or deny repayment on the full value of the public debt by paying creditors in depreciated paper money, or “greenbacks.” This effective repudiation of obligations already accrued — to, among others, hundreds of thousands of Union pensioners and widows, as well as investors — would destroy confidence in the government and endanger the economy.
He is correct that the purpose was to prevent the Confederate states from denouncing the debt incurred by the Lincoln administration in executing his war against them, which is to say it was intended to force them to help pay the cost for their own defeat. But what has this to do with the present day situation? It is Wilentz who is distorting history by saying the 14th Amendment was intended to prevent one party from agreeing with the other to place the nation even further into debt. This is patently absurd. There was no such thing as a ”debt ceiling” at the time. Nor was there a Federal Reserve to finance the government by printing money out of thin air to purchase its bonds.
Furthermore, Wilentz contradicts himself by criticizing on one hand effectively defaulting by repaying debt with depreciated currency while on the other arguing for a debt ceiling increase! The whole purpose of lifting the debt ceiling is so that the government can borrow more money, i.e., by having the Federal Reserve inflate the money supply in order to buy U.S. Treasury securities, thus depreciating the dollar, allowing the government to continue borrowing — effectively from itself — at artificially low rates, and depreciating the dollar.
That is to say, raising the debt ceiling would just allow the government to default by stealth, paying off debt in depreciating dollars while racking up even more debt. It doesn’t take a genius to realize that this is not sustainable.
As you can see, Wilentz’s argument is nonsensical. But he makes a feeble attempt to support his absurd interpretation of the amendment by writing that
on the verge of the amendment’s ratification, its champions inside the Republican Party made their intentions absolutely clear, proclaiming in their 1868 party platform that “national honor requires the payment of the public indebtedness in the utmost good faith to all creditors at home and abroad,” and pronouncing any repudiation of the debt “a national crime.”
But did the Republican Party’s 1868 platform proclaim that national honor required the government to incur even more public indebtedness to repay its existing creditors? Surely they would have also deemed it “a national crime” to incur so much debt that it could not be paid off except by borrowing even more, which also couldn’t be paid off except by borrowing even more, and so on….
It is patent nonsense to argue that since the 14th amendment exists, therefore the U.S. government can never go bankrupt.
If anything, what is unconstitutional under this amendment is racking up so much debt it can never be honored. Looked at this way, the only reasonable and constitutionally correct position a Congressperson can hold would be to refuse to raise the debt ceiling.
Wilentz’s arguments get even more frighteningly bizarre further down the page:
The White House, along with Mr. Tribe, has rightly pointed out that the 14th Amendment does not give the president the power to raise the debt limit summarily.
But arguing that the president lacks authority under the amendment to halt a default does not mean the executive lacks any authority in the matter. As Abraham Lincoln well knew, the executive, in times of national crisis, can invoke emergency powers to protect the Constitution.
Except that Lincoln didn’t exercise constitutional authority to protect the constitution. He usurped unconstitutional powers in order to wage a war to prevent the southern states from exercising self-determination. Wilentz is arguing that Obama should do the same thing. Even though the 14th amendment doesn’t authorize Obama to raise the debt ceiling, he should just do what Lincoln did and “invoke emergency powers” that are supposed to be granted to him somewhere in the Constitution. Wilentz curiously doesn’t disclose to use, however, where in the Constitution we may find these “emergency powers” granted to the Executive. It’s a mystery.
Wilentz adds that “Republicans would continue to lambaste him as the sole cause of the crisis and scream that he is a tyrant”, but, then, Lincoln, too, “became accustomed to such abuse”. Except that it wasn’t “abuse” to point out the innumerable ways Lincoln violated the Constitution. He was a tyrant.
Joe Nocera mindlessly parrots the argument in his column:
The first point worth making is that the 14th Amendment to the Constitution, which declares that “the validity of the public debt of the United States . . . shall not be questioned,” was added precisely to avoid what is happening now: a faction of Congress using the debt ceiling as a bargaining chip.
Again, the 14th amendment was emphatically not added “precisely to avoid what is happening now”. It was not added to force every member of Congress to always vote to increase the debt so long as the newly borrowed money was used to pay off the debt already existing. This obviously would have been a very silly reason for which to amend the Constitution.
And how can it have been intended to prevent “a faction of Congress using the debt ceiling as a bargaining chip” when their was no “debt ceiling”? There was no such thing until 1917, four years after the Federal Reserve was established. (You begin to see what I mean about saying Nocera mindlessly parroted the argument.)
Nocera then makes the even more bizarre comments:
The second point worth making is that U.S. government debt is the only risk-free asset in the world. That debt undergirds the entire world financial system — precisely because the whole world has such faith in it. There is always demand for U.S. government debt.
U.S. government debt is “risk-free”? Really? It sure doesn’t appear that way to me. And as I pointed out at the beginning of this post, citing Nocera’s own newspaper, it increasingly doesn’t appear that way to the rest of the world. Does Nocera not read the New York Times? Does he really think that demand for U.S. government debt is like some law of physics written into the fabric of the universe, or like some commandment of God written into stone and into the hearts and minds of people everywhere? Does he really believe that there is infinite demand in the world for U.S. government debt?
Is Nocera not aware that the Fed has been purchasing most of the U.S. government’s debt, meaning that the U.S. government has essentially been borrowing from itself, and that this, not foreign demand, is what has kept interest rates so low? In March of last year, the Fed was buying an extraordinary 61% of U.S. debt issued by the Treasury department. As the Wall Street Journal reported at the time, the “Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations.” By the end of last year, the Fed’s purchase of newly issued U.S. debt had risen to 90%. Ninety percent. NINETY PERCENT. That meant that the Fed’s expansion of its balance sheet offset almost the entire deficit last year.
So there’s Nocera’s infinite “demand for U.S. government debt”.
Then Nocera throws in the assertion that “a default would exacerbate the country’s long-term debt” because interest rates would rise, which would mean the government would have to pay even higher interest. This overlooks just one little thing: the definition of “default”. If the U.S. defaulted on its debt, it by definition wouldn’t be paying interest on it. It wouldn’t be paying the principal, either. That’s what the word means.
Then, to make sure you get really upset about Congress not enslaving your children with even more debt, Nocera adds that “bondholders in China would likely get their money ahead of, say, Social Security recipients.” Whoops. He was repeating an argument he heard from Obama and his Times colleague Paul Krugman, equally oblivious to the implication. Why would S.S. checks not go out if the U.S. doesn’t raise the debt ceiling so that it can borrow more to pay its debts, unless the U.S. had to borrow the money sent out in S.S. checks? Which would mean that Social Security was broke. Doh!
(I posted on another mindless piece of his in a fairly recent post, “Joe Nocera’s Epic Fail: Lamenting Deregulation of the Airline Industry“.)
The Los Angeles Times back in 2011 actually published a sensible commentary about the “14th Amendment” solution to the debt ceiling by Erwin Chemerinsky, dean of the UC Irvine School of Law:
Unfortunately, there is no plausible way to read this provision as providing the president the ability to increase the debt ceiling without congressional action.
Article I, Section 8 of the Constitution says that it is Congress that has the power “to borrow money on the credit of the United States.” The Constitution thus could not be clearer that borrowing money requires congressional action. Nothing in Section 4 of the 14th Amendment takes this power away from Congress or assigns it to the president. Section 4 of the 14th Amendment says only that the debt of the United States shall not be questioned; it says nothing about who gets to determine the size of the debt or in any way shifts this power from the legislature to the executive.
The power of the purse — including the authority to tax, spend and borrow — is quintessentially legislative. Not even a dire financial emergency would allow the president to take this over. The Constitution, thankfully, has no provision allowing for its suspension even in times of crisis.
It is unfortunate that he thinks it unfortunate that the 14th Amendment didn’t grant the Executive such authority. But he otherwise gets it right. Compare:
“As Abraham Lincoln well knew, the executive, in times of national crisis, can invoke emergency powers to protect the Constitution.” — Sean Wilentz
“The Constitution, thankfully, has no provision allowing for its suspension even in times of crisis.” – Erwin Chemerinsky
They must be reading two different documents. Wilentz clearly wasn’t reading this one. This also goes back to Lincoln being a tyrant. Wilentz was basing his argument that Lincoln acted to defend the constitution upon this invented claim to “emergency powers”. That is, Wilentz argues that suspending the Constitution was constitutional. But as Chemerinsky points out, there is no such provision.
The mainstream media discussion just goes on, though, completely regardless of the facts or common sense.