I am very concerned about the potential economic consequences of failure to raise the debt ceiling — my career was almost completely derailed by one financial crisis, and I am profoundly afraid of what would happen if another struck so soon. But the constitutional implications may ultimately be more important, insofar as Congress may be essentially forcing the executive to adopt more unilateral powers in domestic policy, similar to those the executive already claims in foreign policy (see the open refusal to seek even token Congressional authorization for the Libya intervention).
The reason this is so is that Congress will be producing a situation in which the law is inherently contradictory. On the one hand, Congress has mandated that the government should spend a certain amount of money and has only allowed the government to collect a certain amount of money as tax revenue. On the other hand, Congress will also be saying in effect that the Treasury cannot issue the debt necessary to follow Congress’s own directives. If the Treasury disregards the debt ceiling and proceeds as normal, it’s breaking the law (source: spergel.ca/debt-help/bankruptcy). If the Treasury picks and chooses which bills to pay, it’s breaking the law. (And obviously if the president ordered the IRS to start witholding more money from people’s paychecks to make up the difference, that would also be against the law — but I think American political culture is such that I may be literally the first person to have thought of this hypothetical possibility.)
The fact that the Treasury needs to issue more debt to roll over its current obligations makes the situation even more problematic, but also introduces the potential escape clause of the 14th Amendment. This amendment was adopted after the Civil War and included a clause preventing any future Congress from repudiating the debt incurred in fighting that war or assuming the debt of the Confederacy; the text is as follows:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
Most people quoting the amendment in support of the unconstitutionality of the debt ceiling quote it as follows: “The validity of the public debt of the United States… shall not be questioned.” This obviously leaves out the historical context, as well as a potentially problematic phrase: “authorized by law.”
It seems almost absolutely certain to me that the 14th Amendment was not intended to apply to a situation like we are in danger of experiencing. The fact that it includes the phrase “authorized by law” indicates that it foresees Congressional oversight of debt issuance, given that Congress is the branch of government that writes laws. Obama and other leading Democrats are, on the factual level, probably correct to avoid making overly strong assertions about the unconstitutionality of the debt ceiling.
Nevertheless, it seems fortunate to me that this constitutional escape clause exists, because if the law limiting total government debt to a certain level (i.e., the debt ceiling) were deemed to be unconstitutional, that would remove the legal contradiction, defuse the constitutional crisis that would result from Congress essentially forcing the Executive Branch into a situation where it has to pick and choose which of Congress’s contradictory laws to enforce, and preserve the facade of basic constitutional continuity that may be the only thing standing between us and outright dictatorship.
In addition, given the fact that this option exists, I believe that if Obama chose to obey the debt ceiling and defaulted on U.S. debt, he would be wilfully causing a global financial crisis at a time when the economy is (in part due to the failures of his own policies) still extremely weak. Given the special role of U.S. debt in the global economy, it seems likely that said crisis would be the worst in the entire history of capitalism — if the collapse of one particular asset class reputed to be of AAA quality (CDOs, i.e. securitized mortgages) caused such chaos, what would happen when the gold standard of safe investments collapsed?
One thing’s for certain: the amount of human suffering that would result would be staggering, quickly shooting Obama up the list of “History’s Greatest Monsters.” In addition, he would be creating a situation in which someone like Michelle Bachmann could realistically be elected president, most likely creating a constitutional crisis of quite a different order.
I wish I knew for sure that Obama wouldn’t let that happen.