[The current debt ceiling nonsense is a case of one faction of
Congress being pitted against Congress itself. Its time to end this
absurdity.]
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THIS IS WHAT WOULD HAPPEN IF BIDEN IGNORES THE DEBT CEILING AND CALLS
MCCARTHY’S BLUFF  
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Robert Hockett
May 9, 2023
New York Times
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_ The current debt ceiling nonsense is a case of one faction of
Congress being pitted against Congress itself. It's time to end this
absurdity. _

Joe Biden - Caricature, by DonkeyHotey (CC BY 2.0)

 

The deadline for a debt ceiling hike is only weeks away, with Treasury
Secretary Janet Yellen saying the U.S. could run out of money to pay
its debts by June 1. Some Republicans, whether serious or
bluffing, seem ready
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go to the brink of default — if not actually default on the U.S.
national debt. Debate has intensified
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whether President Biden might sidestep_ _the debt ceiling so the
nation can keep paying what it owes.

There are powerful legal reasons and arguments
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him to do so. These include the 14th Amendment
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prohibits questioning what we already owe, and the so-called
later-in-time rule
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statutory construction, which basically means that Congress’s most
recent budget legislation trumps any earlier legislated ceiling.

Given the stakes, it’s important to explore the likely consequences
if Mr. Biden ignores the debt ceiling — how doing so would affect
our economy and the markets, our retirement savings and even our
constitutional system. There is encouraging news for the president and
those who follow our first Treasury secretary, Alexander Hamilton
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in believing we must pay our legally incurred debts
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We are far better off doing so, even if it means short-term chaos
should Mr. Biden allow the June 1 deadline to come and go.

First, consider the consequences if the United States stopped paying
its debts and defaulted on June 1. This would undo what Hamilton and
his successors sought to ensure: a national credit rating beyond
cavil or reproach
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We would see a great tottering — if not worse — of U.S. banking,
U.S. financial markets and the world’s capital markets.

For one thing, U.S. Treasury securities, valued at over $24 trillion
[[link removed](as%20of%20April)%20%2424.3,%2C%20%2B4.4%25%20Y%2FY] (by
far, the largest asset market in the world), are the primary safe
asset
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in banking, pension fund, mutual fund and other business portfolios.
Our present regional bank crisis involving Silicon Valley Bank and
others is occurring in response to a relatively slight, temporary
drop in the value of low-yield Treasuries
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because of the Fed’s interest rate hikes
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outright default would leave us nostalgic for the comparable placidity
of this troubled moment.

We would also probably see a rapid plunge in the value of the dollar
worldwide
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a global reserve asset. Our currency’s value in relation to
others’ is rooted primarily in global demand for dollar-denominated
financial assets
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since we have relinquished our primacy as a goods exporter
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China. Since Treasury securities are by far the most voluminous asset,
their slide would be the dollar’s slide. This would quickly render
imports, on which we continue to rely, far more expensive. Inflation
could look more like that of Argentina or Russia 20 years ago than
that of the present or even the 1970s.

This is to say nothing of our subsequent incapacity to maintain our
military bases and other assets abroad and to pay thousands of U.S.
military personnel. Only China would be a world-bestriding global
superpower, abetting the moves it is already making with Russia,
Brazil and other nations to displace the dollar as what Valéry
Giscard d’Estaing once called the United States’ global
“exorbitant privilege
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Finally, even the serious prospect of U.S. default would quickly raise
debt-servicing costs, rendering our deficit larger than it currently
is — a consequence dramatically at odds with Republicans’
professed concerns about tying the debt ceiling hike to massive budget
cuts.

It almost makes you think that fiscal responsibility isn’t what
House Speaker Kevin McCarthy’s caucus really wants.

Now suppose the president decides to challenge or ignore the debt
ceiling and instructs Ms. Yellen, on June 1 or before, to continue
paying our nation’s obligations, as established by Congress in the
most recent budget legislation, no matter what. Assume also that he
and his administration carefully explain to the nation the legal and
financial bases — not to mention the moral ones — for continuing
to pay our debts.

The best-case scenario in this situation is that Mr. McCarthy’s
caucus recognizes it has no legal case and its bluff has been called
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that it gives up the tactic and passes budget legislation to which the
Senate and the president can ultimately agree. This is unlikely but
not impossible. After all, the only real alternative for Mr. McCarthy
would be to go to court and seek to enjoin the president’s decision
to continue to pay obligations — legal obligations already
legislatively incurred. The impact of going to court to argue for
defaulting on the nation’s debt, let alone the political optics
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Mr. McCarthy, would be very risky.

It’s also possible that Mr. McCarthy’s Republicans howl in protest
and stage more hearings and votes on the budget in the House, taking
us to the brink of June 1 before legislatively addressing the debt
ceiling. But it’s hard to see this getting them anything other than
impotent spectacle, further cementing their public image as unserious,
especially if the president formally repudiates the debt ceiling now
or this month, rather than waiting until June.

But suppose the Republicans take the president to court nonetheless.
What then? Assuming the courts didn’t refuse to hear the case
on justiciability
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the challenge would certainly receive expedited review, given the
magnitude of the matter. During the brief time the issue was being
litigated, we’d see the beginnings of some of the nightmare economic
scenarios sketched above.

But only the beginnings. The president’s multiple arguments would be
compelling, and the markets, in any case, are already pricing in
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of this sort
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The prospect of an end to the too-often threatened fiscal terrorism
that is debt ceiling gamesmanship, moreover, would surely be more
welcome to the markets than would be continued hostage taking and
associated uncertainty of the kind that Republicans now regularly
impose on the nation and its creditors.

However radical some of the Supreme Court’s right-wing justices
might be, even they understand the legal precept that the
Constitution isn’t a suicide pact
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Even less so is the 1917 Liberty Bond Act, in which the debt ceiling
is rooted. As a legal matter, this ceiling has long since been
superseded
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a new congressional budget process that has determined its own
ceiling
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budgeting since 1974 and was of doubtful 14th Amendment conformity, at
least as now interpreted, in 1917.

Several of the court’s justices are pragmatic people on economic
questions. It is exceedingly difficult to imagine Chief Justice John
Roberts (who famously upheld Obamacare
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after) or Justices Neil Gorsuch and Brett Kavanaugh, let alone the
court’s Democratic appointees, demanding default — especially if
the aforementioned financial tremors have already begun
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Justices Samuel Alito and Amy Coney Barrett are a bit harder to call,
but it seems likely that at least Justice Alito would refrain from
demanding default, given his record of moderate decisions on issues
of financial law
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Justice Clarence Thomas and perhaps Justice Barrett, accordingly, look
fairly likely to strike the debt ceiling, at least as applied
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Republicans, should they try to sue the president out of paying our
already legislated obligations come June.

Will invoking the 14th Amendment amount to a constitutional crisis,
as Ms. Yellen suggested
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week? Not really. For one thing, as noted above, there are multiple
grounds upon which Republican hostage taking on the debt ceiling is
contrary to law, and not all of them implicate the Constitution. For
another thing — and, in my view, yet more important — the present
issue is not really a legal issue pitting the president against
Congress.

The current debt ceiling nonsense is a case of one faction of Congress
being pitted against Congress itself. Our legally contracted debt is
congressionally legislated debt; refusal to pay on this debt boils
down to the House Republican faction refusing to pay what Congress
itself has mandated we pay.

Let us now end the absurdity. Let us bury the Liberty Bond-era debt
ceiling.

_Robert Hockett is a professor of law at Cornell University, an
adjunct professor of finance at Georgetown University’s McDonough
School of Business and a senior counsel at Westwood Capital. He worked
at the Federal Reserve Bank of New York and the International Monetary
Fund._

_Gain unlimited access to all of The Times. Introductory offer:
$1/week.
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* Joe Biden
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* Kevin McCarthy
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* Debt Ceiling
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