The President announced a day of shuttle diplomacy on Monday, with consecutive meetings with Harry Reid and Mitch McConnell aimed at “negotiations to find common ground on a balanced approach to deficit reduction.” Notably, House Speaker John Boehner is not part of this round of meetings; there was this assumption that Boehner and Obama would have to work out the differences between the two of them and arrive at a solution, but the White House has dismissed that for now.
At the beginning of the month, July 4 was seen as a soft deadline for arriving at a solution on the debt limit and deficit reduction. That doesn’t appear likely now, although the meetings next week look like the last-ditch effort to find a deal. What happens if that breaks down? Treasury has given the hard deadline as August 2, after which the debt limit will have been reached, and extraordinary measures by Treasury no longer effective. But money will still be coming into the Treasury on a rolling basis, just not enough to meet current commitments.
At this point the White House has a few options. They can pay off a portion of the creditors, while giving warrants or IOUs to everyone else; they could simply default on some payments, triggering a fairly catastrophic series of events; or, they could ignore the whole concept of a debt limit and continue paying out debt on Constitutional grounds. This third option is getting more and more play, including in the New Republic:
Jonathan Zasloff, a professor at the UCLA School of Law who has discussed this idea on a blog that he writes with several other academics, told me that while an order from the president for the Treasury Department to continue issuing new debt sounded extreme, it was unclear who could prove sufficient injury from the decision that would qualify the person to sue the administration in court. “Who has some kind of particularized injury, in fact?” Zasloff asked, and he could not come up with a satisfying answer.
Leaving Congress aside, it appears the only possible party to a suit challenging the administration’s ability to exceed the debt ceiling would be a character that almost seems designed to elicit zero public sympathy: those who purchased credit default swaps which would pay off in the event of government default. Charles Tiefer, a law professor at the University of Baltimore, told me that Congress could pass a statute that strengthened the ability of this group of investors to sue as an injured party. But this statute, of course, could be filibustered in the Senate or vetoed by the president. Moreover, it would force Republicans to defend the right of those who had hoped to profit from a national default or dip in creditworthiness to sue the government because their payouts had been prevented.
But even if standing could be established and the Obama administration gets taken to court, some legal experts note that an additional argument of surprising strength could be made: The government cannot legally default on its debts. Former Reagan official and maverick conservative budget wonk Bruce Bartlett has suggested as much by invoking Section Four of the Fourteenth Amendment, which says that “The validity of the public debt of the United States, authorized by law … shall not be questioned.” Although there has been little litigation or discussion of this section, it could be read to imply an absolute firewall against statutory limits on paying or devaluing the debt.
Is it really such an open and shut case? Obviously it has not yet been challenged in court. Yet the intent of the Fourteenth Amendment is pretty clear.
Still, given the current chief executive, I’d have to say this falls more along the lines of the theoretical. It would be very partisan to ignore the debt limit, and it really wouldn’t fit with the stated goal of the President to responsibly manage the nation’s deficit. The President has been talking about a grand bargain to reduce the deficit since before his Presidency. Most, if not all, of his economic team wants to see that happen. I’m not sure they see the debt limit as a constraint so much as a forcing event.