Should Obama invoke the 14th Amendment and bypass Congress?

[mheslep]

I'm not following - didn't a Democratic Congress pass a budget last year, which puts us over the debt limit next week?

No, they kept spending going, but they did not pass an annual budget for 2011 in which they are required to spell out proposed spending vs taxes vs a deficit.

Majority Leader Steny Hoyer made official Tuesday morning what most insiders have known for months: Congress won’t do a budget this year

http://www.politico.com/news/stories/0610/38843.html
The entitlements in particular are funded forever, absent Congressional action to turn the ship. They did pass several narrow appropriation bills.

 

[mheslep]

Looks like Boehner is done with talks.

http://news.yahoo.com/big-debt-deal-gains-traction-amid-chaotic-efforts-000029172.html

If Obama bypasses Congress, then at least we could get moving again.

Get moving? Where? Down the path to an http://www.reuters.com/article/2011/07/22/us-eurozone-greece-programme-idUSTRE76L2PQ20110722" ?

 

[mheslep]

...
Who was "violating the constitution" the two times previously that the United States Treasury defaulted on its outstanding and previously legal debt obligations?

... effectively, the Treasury was authorized by Congress and instructed by Roosevelt to default on its gold contracts (don't believe that nonsense about "the United States has never faulted on its debts";...

Great point.

 

[russ_watters]

No, they kept spending going, but they did not pass an annual budget in which they are required to spell out proposed spending vs taxes vs a deficit.

Oops, I'd forgotten. Doesn't actually change much about the issue, though, since (just checked...) they did pass one for 2010. Point being, they have controlled the purse for the past two years, up until this fight. But yeah, I guess since we're discussing failure to fulfill obligations...

 

[Newai]

Actually, Boehner said (something to the effect of) dealing with the White House is like working with a bowl of jello - great line! Actually, I think it's better if the House and Senate work something out on their own - then give it to the President to sign - he'll sign whatever they give him - IMO.

Perceptions vary.

 

[Newai]

Get moving? Where? Down the path to an http://www.reuters.com/article/2011/07/22/us-eurozone-greece-programme-idUSTRE76L2PQ20110722" ?

As opposed to a default anyway?

 

[hbjon]

Here in Minnesota we have creative accounting and debt management. We spend like drunken sailors, then when we wake up we think how we might pay off our credit cards. For instance. We invented an idea...We say the tobacco industry owes us 50 billion ( I donno if that is the right number) to pay off doctors and hospitals because of the effects smoking has had on us Minnesotans. We had a court rule in our favor on that one ; ). Then we go to a bank and say," Can we have an advance on this money the tobacco industry owes us? They said,"okie dokie". Now, using this logic, why can't we get a court to say that Osama Bin Laden owes America 20 trillion and have the fed monetize that until we can collect from all OBL's businesses and allies. After all we would not have the burden of proving him guilty now that he is dead.

 

[Proton Soup]

A curious question for those whose turture of the English language enables them to imagine presidential power under the 14th Amendment that simply do not exist.

Who was "violating the constitution" the two times previously that the United States Treasury defaulted on its outstanding and previously legal debt obligations?



I'm convinced your either deliberately pretending to be dense, or simply trolling for a reaction. There is no authority under the 14th amendment or anywhere else for the president to bypass Congress. No court in the history of that amendment has held that it prohibited from the Treasury from deciding what to pay and how, subject to the laws passed by Congress. The cloest parallel in American history was when we left the gold standard behind; effectively, the Treasury was authorized by Congress and instructed by Roosevelt to default on its gold contracts (don't believe that nonsense about "the United States has never faulted on its debts"; every elementary school child knows the history of the gold standard in this country). In four separate cases, the court found that Congressional power over debts and the money supply was plenary or absolute, each time asserting this authority under different avenues of argument (including the 14th amendment).

since you're the lawyer guy here, what do you think about printing "http://en.wikipedia.org/wiki/United_States_Note" "?

we don't have to borrow money to pay our financial obligations, the federal government has the authority to just print the money and pay its financial obligations. since we're going all the way back to the civil war to find a way to deal with the current crisis, why don't we just do what lincoln himself did: print greenbacks?

 

[mheslep]

As opposed to a default anyway?

I think you miss the point.

Whatever happens on Capital Hill the US can pay the interest on its debt with the revenue it already takes in today and the entire world of US creditors knows this. Greece can not. Greece is mathematically unable to pay its creditors without borrowing more. Have the US keep up on its current path for a few more years and the US too will be unable to pay.

 

[mege]

I think you miss the point.

Whatever happens on Capital Hill the US can pay the interest on its debt with the revenue it already takes in today and the entire world of US creditors knows this. Greece can not. Greece is mathematically unable to pay its creditors without borrowing more. Have the US keep up on its current path for a few more years and the US too will be unable to pay.

What is the real impact (not just in potential perception/market confidence lost) of the failure to raise the debt celing by August 2? A partial government shutdown again? In rereading this thread, I realized that I didn't really have a firm grasp on what would happen on August 3. I know the government isn't to the point of default, but what's the real impact?

This is something that I don't totally understand and it seems like individuals (not neccessarilly in this thread or forum) bring up whatever flavor of the hour armageddon scenario to explain the impact.

 

[Ivan Seeking]

What is the real impact (not just in potential perception/market confidence lost) of the failure to raise the debt celing by August 2? A partial government shutdown again? In rereading this thread, I realized that I didn't really have a firm grasp on what would happen on August 3. I know the government isn't to the point of default, but what's the real impact?

This is something that I don't totally understand and it seems like individuals (not neccessarilly in this thread or forum) bring up whatever flavor of the hour armageddon scenario to explain the impact.

Take it from the man who would know - The Treasury Secretary
http://www.treasury.gov/connect/blog/Documents/20110513 Bennet Letter.pdf

In short, this cannot be allowed to happen. The debt ceiling must be raised.

Who are you going to believe; Michelle Bachman and the tea partiers, or Tim Geithner?

 

[mege]

Take it from the man who would know - The Treasury Secretary
http://www.treasury.gov/connect/blog/Documents/20110513 Bennet Letter.pdf

In short, this cannot be allowed to happen. The debt ceiling must be raised.

Ahhh, I see where the President gets his fear mongering from.

Seriously though, from a basic perspective, I don't disagree that the debt celing needs to be raised (but IMO the responsible thing is to make sure that we roll spending back to levels a few years ago or lower). Even with Sec. Geithner's explanation, I'm still fuzzy as to what the day after would look like. Does the President (or congress?) prioritize payments? Does the treasury just pay anyways and 'bounce a check' or two? Is it first come first serve and agencies get their money alphabetically? The opportunity impact is huge, for sure, but the real impact is what I'm interested in and unsure of.

 

[Ivan Seeking]

Ahhh, I see where the President gets his fear mongering from.

It isn't fear mongering when the threat is real. As we are seeing for a second time, tea partiers would drive this country over a cliff in order to save it, with no regard for the pain and suffering, nevermind the loss of financial credibility, it would cause.

Seriously though, from a basic perspective, I don't disagree that the debt celing needs to be raised (but IMO the responsible thing is to make sure that we roll spending back to levels a few years ago or lower). Even with Sec. Geithner's explanation, I'm still fuzzy as to what the day after would look like. Does the President (or congress?) prioritize payments? Does the treasury just pay anyways and 'bounce a check' or two? Is it first come first serve and agencies get their money alphabetically? The opportunity impact is huge, for sure, but the real impact is what I'm interested in and unsure of.

We [Geithner] prioritize and lots of people don't get paid money they're due - obligations that already exist.

 

[Hurkyl]

It isn't fear mongering when the threat is real.

What does the latter have to do with the former?

 

[SixNein]

Ahhh, I see where the President gets his fear mongering from.

Seriously though, from a basic perspective, I don't disagree that the debt celing needs to be raised (but IMO the responsible thing is to make sure that we roll spending back to levels a few years ago or lower). Even with Sec. Geithner's explanation, I'm still fuzzy as to what the day after would look like. Does the President (or congress?) prioritize payments? Does the treasury just pay anyways and 'bounce a check' or two? Is it first come first serve and agencies get their money alphabetically? The opportunity impact is huge, for sure, but the real impact is what I'm interested in and unsure of.

The responsibility will probably fall somewhere between the federal reserve and the treasury. I'm not sure to what extent payments can be prioritized because there are so many offices that cut checks. Overall, I'm sure it would be a complete mess.

Outside of checks, many states and corporations would stand to lose their credit ratings. So this would just send shock waves throughout the market. And I don't think anyone knows just how bad it could get. Markets usually go to the treasury in times like this. But the treasury will be the trigger. So who knows how people will respond.

Just shows how politically poisonous America is right now.

 

[SixNein]

If Congress fails to act, should Obama follow the advice of Bill Clinton?


http://blogs.forbes.com/jerrybowyer/2011/07/20/four-questions-for-obamas-14th-amendment-courtiers/



I would want to spend time with legal experts to gain clarification, but yes, if it seems that he can legally do this, it seems to me a better option than allowing the tea party to destroy the full faith and credit of the US. In fact, I would argue that in a crisis Obama is required to do this in the interest of national security. The tea party cannot be allowed to ruin a highly fragile and struggling economy. We cannot allow a 30% voting block to break us due to some wildly misguided ideology.

Recall that these are many of the same folks [Republicans] who would have allowed global economic collapse back in 2008, and voted against the bank bailouts.

Obama has already consulted with lawyers about it, and they don't believe the argument would hold up in front of the supreme court. So that's that for this option.

 

[Alfi]

Obama has already consulted with lawyers about it, and they don't believe the argument would hold up in front of the supreme court. So that's that for this option.

Is there a reason a President can't just consult the with the Lawyers of the Supreme Court directly?
Cut out the middle Lawyers as it were. ( the $$ savings alone could be substantial )

 

[BobG]

It isn't fear mongering when the threat is real. As we are seeing for a second time, tea partiers would drive this country over a cliff in order to save it, with no regard for the pain and suffering, nevermind the loss of financial credibility, it would cause.

I think the rationale is that driving the government over the cliff saves the people of the country. The government and the country aren't one and the same.

I think it's true that most people would see destroying the federal government as being bad for the people, though. Others will have to see it before they believe it.

 

[Jimmy Snyder]

If they don't raise the debt limit, S&P will lower our credit rating on or about Aug 3. If they don't reduce the deficit, S&P will lower our credit rating on some as yet unspecified date. The obvious solution is to lower the debt and raise the debt limit, but I'm not sure that makes sense.

 

[russ_watters]

It isn't fear mongering when the threat is real. As we are seeing for a second time, tea partiers would drive this country over a cliff in order to save it, with no regard for the pain and suffering, nevermind the loss of financial credibility, it would cause.

Or, from the other direction [again], Obama would drive the country over a cliff rather than accept a deal acceptable to Republicans. That's how "deals" work, Ivan - both parties have to agree to them.

As said above, perspectives vary.

 

[russ_watters]

Is there a reason a President can't just consult the with the Lawyers of the Supreme Court directly?

He can have them over for a beer and bbq and ask them (and he'll get a half-drunk-at-a-bbq answer), but we have a legal system and legal process for a reason. It's a serious thing. The off-the-cuff answer is probably a flat "no", but Obama knows that and if he wants to argue the opposite - if he really wanted to do it - he'd want to put together a formal case/argument and go through the formal process.

It's like the World Series - we could just award it to the Phillies today since they're clearly the best team, but you have to play all the games and go through the process...and when you get there, the winner may even be different.

 

[WhoWee]

I think the President should reject the Bill Congress will most likely put on his desk next week (that probably won't give him the extension into 2013) and instead - take Bill Clinton's advice - to act on his own. By doing this, he'll enable the House to move for Impeachment. That will make for a very lively 2012 election. Please label - IMO.

To Ivan - on a serious note - I think the President should be given authorization of an increase of the debt limit that reflects current spending projections over the next 5 years. It puts the real number on the table.

As consumers, we are rewarded by keeping within a certain level of our credit limit - average under 30% on all lines over $5,000 is the ideal. I've been talking to quite a few (corporate) credit professionals over the past few weeks and they all agree the bond market would respond positively to such a move - can't support with specifics - label IMO.

By putting a larger debt ceiling in place, it will eliminate the need for these constant increases. It would also provide a framework and goals for legislators to work within regarding revenues and expenses. If financial responsibility can be demonstrated by staying within that framework - confidence can be restored to the system. Constantly increasing the line makes Congress and (all) the President(s) look like carnival clowns to the world - IMO.

 

[Ivan Seeking]

Or, from the other direction [again], Obama would drive the country over a cliff rather than accept a deal acceptable to Republicans. That's how "deals" work, Ivan - both parties have to agree to them.

As said above, perspectives vary.

Not the same argument. On the right, we have people dedicated to a principle. On the left, we have people trying to respond to real needs - social security checks for the elderly, pay for soldiers, food stamps for those who can't afford food, services for the disabled and war veterans [remember them?] ...

Obama refuses to sell out the poor and the middle class, for the rich. He went way too far already and they still wouldn't take the deal.

It is the difference between abstraction and reality. I choose reality over economic ideology. In times likes these, there is no credible argument for not raising taxes on the wealthy. They more than anyone have profitted from the economy over the last fifteen years. You can support policies that promote investment while going after golf holidays in Aruba. The right wants to blur the line and act as if there is no difference between investment and pocket money, but there is.

 

[MarcoD]

What is the real impact (not just in potential perception/market confidence lost) of the failure to raise the debt celing by August 2? A partial government shutdown again? In rereading this thread, I realized that I didn't really have a firm grasp on what would happen on August 3. I know the government isn't to the point of default, but what's the real impact?

This is something that I don't totally understand and it seems like individuals (not neccessarilly in this thread or forum) bring up whatever flavor of the hour armageddon scenario to explain the impact.

If the ceiling is not raised the US -unless they increase taxes substantially- cannot make good on its debt. Failure for a government to pay back on debt means that banks, and other holders of bonds, possibly go bankrupt.

Imagine you're a bank and 30% of your assets are US debt, which are basically IOU's. Then (part of) that capital goes up in smoke. Banks don't have enough money to operate, banks can't loan each other money again, they cease to work with each other -since they don't know which of their partners can/will go bankrupt- and don't have the money anymore to invest in the economy, recession. (This was what happened that last time around with the subprime mortgages.)

In the (unlikely) worst case, people will lose their trust that their money is safe at the banks and they will start a bank run - everybody tries to get their money from the bank before it goes bankrupt, and solid banks even go bankrupt because of that. Foreign investors flee from the dollar into other currency and internationally the dollar would not be accepted anymore as 'good' trustworthy currency. It would become near impossible to buy, for instance, oil from the market and the whole economy collapses. In the worst case, you end up without a monetary system and you'll end up trading oil for grain directly.

(But as I said the worst case is pretty unlikely. The likely scenario is that banks will accept that part of the debt they own is only worth 80% of its nominal value, they take a loss, the US dollar is inflated, and the US will be in a recession for a year or so.)

(The real problem is where the top of the ceiling is, you cannot raise it infinitely. At some point, the US starts to move in a Greece-like position and banks will just cease to believe that the US government will at some point pay back on its debt, and will -for a while- borrow money at insane rates but at some point just will stop buying debt, leading to any of the above scenarios.)

 

[mheslep]

Failure for a government to pay back on debt means that banks, and other holders of bonds, possibly go bankrupt.

Imagine you're a bank and 30% of your assets are US debt, which are basically IOU's. Then (part of) that capital goes up in smoke. Banks don't have enough money to operate, banks can't loan each other money again, they cease to work with each other -since they don't know which of their partners can/will go bankrupt- and don't invest any money anymore in the economy, recession. (This was what happened that last time around with the subprime mortgages.)

In the worst case, people will lose their trust that their money is safe at the banks and they will start a bank run - everybody tries to get their money from the bank before it goes bankrupt, and banks even go bankrupt because of that. Foreign investors flee from the dollar into other currency and internationally the dollar would not be accepted anymore as 'good' trustworthy currency. It would become near impossible to buy, for instance, oil from the market and the whole economy collapses. In the worst case, you end up without a monetary system and you'll end up trading oil for grain directly.

This is all nonsense with regard to any plausible outcome of August 2nd. The 'worst case' is only possible years from now if the deficit continues at current levels, in which case the government would become mathematically incapable of paying interest on the debt.

 

[WhoWee]

Not the same argument. On the right, we have people dedicated to a principle. On the left, we have people trying to respond to real needs - social security checks for the elderly, pay for soldiers, food stamps for those who can't afford food, services for the disabled and war veterans [remember them?] ...

Come on Ivan - who on the Right wants to (specifically) hurt elderly people on SS, US soldiers, people who can't afford food, and any veterans? Please support.

 

[Proton Soup]

Obama refuses to sell out the poor and the middle class, for the rich. He went way too far already and they still wouldn't take the deal.

oh really? this is a bankers' president, not a mortgagees' president.

this man hasn't talked like a democrat since the campaign

https://www.youtube.com/watch?v=UErR7i2onW0


and that "who are you going to believe?" line with Giethner, please. I'm tired of having my intelligence insulted that the bankers have anyone's interests but their own. the problem is we have too much faith and credit, not too little. how long until we end up like Greece and can afford to do little more than pay the interest? this has got to stop, it's not sane.

 

[WhoWee]

oh really? this is a bankers' president, not a mortgagees' president.

this man hasn't talked like a democrat since the campaign

https://www.youtube.com/watch?v=UErR7i2onW0


and that "who are you going to believe?" line with Giethner, please. I'm tired of having my intelligence insulted that the bankers have anyone's interests but their own. the problem is we have too much faith and credit, not too little. how long until we end up like Greece and can afford to do little more than pay the interest? this has got to stop, it's not sane.

I doubt if you'll ever hear President Obama make SUCH naive promises in the future. Unfortunately, (other than FOX News) the media doesn't hold him to his promises much - do they?

 

[MarcoD]

This is all nonsense with regard to any plausible outcome of August 2nd. The 'worst case' is only possible years from now if the deficit continues at current levels, in which case the government would become mathematically incapable of paying interest on the debt.

How do you imagine the US will pay back on their debt (bonds) if they cannot raise the capital to do so?

 

[mheslep]

How do you imagine the US will pay back on their debt (bonds) if they cannot raise the capital to do so?

With the $2.17 trillion it will take in tax revenues this year. The 'worst case' come August 3, and this is highly unlikely, is that a couple of coupon payments will be missed, which happens to large bond holders all the time. The treasury bonds will not "go up in smoke."

 

[mheslep]

Interview with famous bond trader Druckenmiller:

"Here are your two options: piece of paper number one—let's just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don't know, six days, eight days, 15 days, but I know I'm going to get it. There's not a doubt in my mind that it's not going to pay, but it's going to be delayed. But in exchange for that, let's suppose I know I'm going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured," he says.

Then there's "piece of paper number two," he says, under a scenario in which the debt limit is quickly raised to avoid any possible disruption in payments. "I don't have to wait six, eight, or 10 days for one of my many payments over 10 years. I get it on time. But we're going to continue to pile up trillions of dollars of debt and I may have a Greek situation on my hands in six or seven years. Now as an owner, which piece of paper do I want to own? To me it's a no-brainer. It's piece of paper number one."

http://online.wsj.com/article/SB10001424052748703864204576317612323790964.html

 

[MarcoD]

With the $2.17 trillion it will take in tax revenues this year. The 'worst case' come August 3, and this is highly unlikely, is that a couple of coupon payments will be missed, which happens to large bond holders all the time. The treasury bonds will not "go up in smoke."

I said part of the capital of banks will go up in smoke. Failure to (partly) redeem debt, or redeem debt on time is the same thing. If I don't get $100 back on time to reinvest it, I take a loss, it's that simple. Banks will just not know whether they are capitalized enough to take all the hits. Moreover, if the US don't pay on time just _once_, future interest on debt will go up, because of the added risk, and they will have a bigger problem.

Of course, the government may chose to give higher priority to US debt than wages of officials - and I guess that could happen. But in that case policemen, soldiers and nurses will not receive enough money, banks become underfunded, possibly people can't pay their mortgages, people will spend less money in the economy and the economy still takes a big hit.

The US government spends $3.5 trillion - failure to raise the debt ceiling, or/and increase taxes, will have major consequences.

 

[WhoWee]

I said part of the capital of banks will go up in smoke. Failure to (partly) redeem debt, or redeem debt on time is the same thing. If I don't get $100 back on time to reinvest it, I take a loss, it's that simple. Banks will just not know whether they are capitalized enough to take all the hits. Moreover, if the US don't pay on time just _once_, future interest on debt will go up, because of the added risk, and they will have a bigger problem.

Of course, the government may chose to give higher priority to US debt than wages of officials - and I guess that could happen. But in that case policemen, soldiers and nurses will not receive enough money, banks become underfunded, possibly people can't pay their mortgages, people will spend less money in the economy and the economy still takes a big hit.

The US government spends $3.5 trillion - failure to raise the debt ceiling, or/and increase taxes, will have major consequences.

Care to support how you've made these determinations?

 

[MarcoD]

Care to support how you've made these determinations?

Which determinations, it is just economics? The 3.5 trillion is from wikipedia, the rest is just plain economics and financials.

 

[WhoWee]

Which determinations, it is just economics? The 3.5 trillion is from wikipedia, the rest is just plain economics and financials.

Why and how will the capital go up in smoke?
Soldiers are paid by the Government - but not civilian police and nurses - please explain?

Your reference to wiki really doesn't help clarify.