President Biden's Debt Ceiling Options

for the Union side debts from the Civil War. But the language is much clearly broader than simply Civil War debts, and so it is taken by everybody to be a general statement of the proposition that the federal government should pay its debts. There is debate over or what counts as part of the public debt. Does that mean, as some people say, only principle and interest payments on bonds, or does it mean, as simplical say, in the other direction,

everything that the government has agreed to pay. So that includes, of course bond principle and interest, but also paying creditors for services rendered, such as hospitals and doctors who perform medical services pursued to medicare social security recipients who are owed the money by virtue of entitlement legislation, and so forth.

So that's the question, and the theory is that if the government is unable to pay all of its bills, then that is either a default, or even if not a default, it calls into question the validity of the public debt. So some people argue, and I think this is a pretty plausible argument, that if the government fails to raise the debt feeling and can't come up with the money to pay all of its bills some other way by taxes or selling property or what have you,

then that would violate the fourteenth Amendment. And under those circumstances, the debt sealing statute would be unconstitutional. And so the president, by so called invoking that would be saying, well, if the debt stealing statute is unconstitutional, we do what we do with any unconstituted statute. We put it aside. And then there are other statutory provisions that authorize the government to borrow so much money as is necessary to pay

the government's bills. So that's the theory behind invoking the fourteenth Amendment. And as I say, it's pretty good. What President Biden expressed a worry about is that, as he said, it would have to be litigated. Now I don't think that's literally accurate. It wouldn't have to be litigated, but it almost certainly would be litigated. So, as a practical matter, his concern is legitimate people would sue. Possibly House Republicans

would sue. You could imagine investors in pension funds and the like suing to stop the funds from purchasing bonds of questionable legality, and so there would be litigation, and that would mean that there would be uncertainty about the new debt that had been issued. At the very least, there would be an interest premium that the government would have to offer investors to accept bonds that might not later be declared valid.

of ruling you could get in France, for example. But our courts do not issue advisory opinions, and so the only way to find out the answer to a legal question is to do it in real time, as it were.

And so I think the reason that both President Obama and now President Biden were reluctant to go that route was because if you do, and then subsequently the courts say, actually, you can't do that because the fourteenth Senment has a narrower scope, or because even if the dead ceiling is unconstitutionally you still don't have the power to borrow money.

Then you only find out after the fact, and in the meantime a whole lot of people might have purchased bonds, and that could add to the chaos, uncertainty, and economic damage.

federal workers. Their theory is not that this would violate the fourteenth Amendment, but following a line of reasoning that I and Neil Buchanan, who's a macroeconomist at the University of Florida, have articulated over the last dozen or so years, the theory would be that this would be a violation of separation of powers. And let me explain why that

would be so. Article one, section eight of the Constitution gives to Congress all of the relevant powers of the purse, the power to tax, the power to spend, and the power to borrow. If the government passes sets of laws that say, collectively, spend more money than the combination of what you take in through taxation and borrowing, Professor Buchanan and I say, well, that means that the government can't comply with all three of those things simultaneously. Something has

got to give. Our analysis has always been that what has to give then should be the debt sealing that the debt sealing provision would be the one that you don't comply with. And the reason is that you can't do either of the other two things. Certainly, the president isn't going to raise taxes on his own. That's not power the president has. But the president also doesn't have the power to prioritize, that is to say, to cut spending. That's the power of Congress. The Constitution says Congress gets

decide how much we spend money on. And it's not just that the president can't spend money without authorization. The president also can't not spend money that he's been authorized to spend. I can give you two relatively recent examples of this. So President Nixon tried to do this. He impounded, that is to say, didn't spend a whole bunch of money that Congress had appropriated, and that was eventually slapped

down by the court. When President Trump did this with respect to the money that was supposed to go to Ukraine, that ended up being the first basis for the articles of impeachment against him in twenty nineteen. Right, the idea that you can't fail to spend money that Congress has said you should spend. And the reason for that is simple. Congress has the power of the purse. Budget deals are

carefully negotiated. There's all sorts of bargaining going on. If the president could just decide, you know what, I didn't want to spend the money on this combat fighter plane or for this environmental project, so I'm just not going to spend it, you would be taking over legislative power.

And so what this lawsuit argues is if the president, in a debt sealing crisis were to say, I'm going to pay the bondholders, I'm going to pay federal military contractors, but I'm not going to pay all of these federal workers. That would be a usurpation of legislative power, far worse than for the president simply to instruct the Secretary of the Treasury continue borrowing money the way you always do,

but only in the amount necessary to cover the revenue gap. Crucially, what the lawsuit says is that Congress could, if it wanted to give to the president discretion not to spend

certain funds. But it hasn't done that here, and it certainly hasn't provided any kind of what is sometimes called an intelligible principle, by which the president is supposed to make the decision of whom to pay, when to pay, whom to stiff by how much, and so forth, so that in the absence of congressional legislation specifying a prioritization scheme, it is a usurpation of legislative power because of the vast scope of presidential discretion. As I say, that is

the theory of this lawsuit. It is also more or less the view that Professor Buchanan and I have been arguing for now for about a dozen years.

a deal doesn't get through Congress. I suspect that what the Justice Department is doing here is sort of holding their cards as close to the vest as possible, because they undoubtedly have a Plan B, but they want to keep the pressure on the Congress to make a deal by not saying what that Plan B is. I should

say this is not necessarily the best bargaining strategy. Sometimes you want to make clearer to your bargaining partner what you'll do in the event that the negotiations break down, because arguably by ruling out or seeming to rule out, these other workarounds, what the administration is doing is telling Speaker McCarthy, hey, we've got no Plan B, and so

we need this more than you do. What you really want is to put the pressure on the other side to think that they need it more than you do, and so ruling out Plan B doesn't seem to do that. But as I say, I don't think that President Biden has fully ruled out other options, whether it's the fourteenth Amendment or even better, this separation of powers argument, or some of the other ideas that have been floated.

clock strikes midnight with no legislation. But of course the Union is suing the administration right, Saying that the administration could do something seems like it's confusing who the plaintiff and the defendant are, right, the plaintiffs of the and who are saying, yeah, they should do something, so give them an order to do it.

And it's not necessarily even my view that the debt feeling is unconstitutional the way Professor Buchanan and I talk about it, As we say, violating the debt ceiling is less unconstitutional than the other plausible options, in particular, less unconstitutional than usurping legislative power to make the president have

the decision over the entire budget. But what I have said, and this is more as a matter of sort of strategy and tactics and constitutional law, is that the president's hand would be strengthened in any bargaining were he to announce that, if push comes to shove, I'm going to continue to issue debt. I should say I'm not a professional strategist, tactician, or politician. And so when I say that they should have announced that, I don't say that

with enormous confidence. I have greater confidence in my legal analysis than I do in my ability to project how all the politics plays out.

administration has ruled it out. In addition, I don't actually believe it has the legal advantages that as proponents say. That is to say, I don't think the statute authorizing the creation of these coins is for anything other than collector's items and commemorative coins. But that's one idea that's floating around a somewhat less ridiculous idea is to have the government borrow money but to issue bonds that either have no expiration date or that pay a super premium

rate of interest. And the reason to do that is that, given that the way that the Debt Feeling Statute is written, the face value of those bonds would be much lower than what the government could sell them for, and so the government would be able to actually issue a lot of debt, not all of which would count against the debt fealing, and so that would buy a whole lot

of time potentially. I think this argument is somewhat more plausible as a matter of the statutory text, but it would also be subject to the same problem that the President had with invoking the fourteenth Amendment, namely, there would undoubtedly be litigation over the validity of those bonds.

weeknight at ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg