14th Amendment debt ceiling strategy could be risky, Biden aides fear
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Senior White House officials see enormous risks in trying to resolve the debt ceiling impasse without Congress, viewing the unilateral measures floated by some academics only as emergency measures of last resort, according to three people with knowledge of internal conversations. Wp Get the full experience. Choose your plan ArrowRight As they have for months, Biden aides have recently been evaluating a wide range of proposals for acting on the debt limit without the consent of Congress — particularly by invoking the 14th Amendment of the Constitution to declare the limit unconstitutional and keep borrowing to pay bills even if the cap isn’t raised.
But internally, advisers view the options as risky choices that could cause lasting economic damage, the people said, speaking on the condition of anonymity to discuss private conversations. White House aides do not want to take the proposals completely off the table. If the federal government actually can’t borrow more, the United States could be in uncharted territory with no clear way to avoid calamity, which would make extreme measures more appealing. But administration officials are adamant that Congress must act to raise the debt limit, believing this is the only sure way to avoid financial turmoil.
Since the debt ceiling fights that began during the Obama administration, some legal experts have argued that the White House can ignore Congress and simply declare the borrowing limit to be incompatible with the 14th Amendment, which says “the validity of the public debt, authorized by law … shall not be questioned.” Under this theory, the Treasury Department could keep borrowing money past the limit, issuing federal debt to keep government operations funded. The administration would argue that Congress had approved two irreconcilable laws — the debt ceiling, and then later, measures that require spending in excess of the limit.
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Other unilateral proposals studied internally but taken less seriously include issuing bonds that never mature and therefore technically don’t count against the borrowing limit, or minting a $1 trillion platinum coin to be deposited at the Federal Reserve.
But administration officials think these kinds of moves could backfire dangerously.
Any option to act without Congress would probably be subject to immediate legal challenge by Republicans as an overreach of executive authority. No matter what the merits of the debate are, Biden officials fear that investors would demand much higher interest rates to buy government debt that the courts could throw out, since prospects for repayment would be unclear. That could lead federal borrowing costs to spike, as well as drive up rates for other loans, and it could still lead to the same broader panic in financial markets that it is intended to avoid, administration officials fear.
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“You have to worry about the interest rates, the market reaction, the effect on financial markets that rely on Treasurys. There’s no way to avoid potentially significant economic damage given the debate that would ensue,” said David Kamin, who served as deputy director of the White House National Economic Council earlier in the Biden administration.
Kamin, who was involved in the administration’s internal discussions about the debt limit during a standoff in 2021, said he thinks the White House would have a strong case that the borrowing limit is unconstitutional — but the crucial factor is what investors think the courts might do.
“The only option where there is clarity, and you can with confidence avoid economic damage, is Congress acting, as they have in the past,” said Kamin, who emphasized he was only representing his own views.
White House skepticism of unilateral action only raises the stakes of Tuesday’s meeting between Biden and congressional leaders, including House Speaker Kevin McCarthy (R-Calif.), whose support will be needed to raise the limit.
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Administration officials have largely declined to comment on their internal assessments of unilaterally lifting the debt limit.
President Biden, asked about the 14th Amendment by MSNBC on Friday, said: “I’ve not gotten there yet.”
Treasury Secretary Janet L. Yellen on Sunday reiterated that there would be “no good options” besides Congress acting. Yellen has called for Congress to abolish the debt limit altogether, but she sounded skeptical of the merits of invoking the 14th Amendment, in an interview with ABC News.
“There is no way to protect our financial system and our economy other than Congress doing its job and raising the debt ceiling and enabling us to pay our bills,” Yellen said. “We should not get to the point where we need to consider whether the president can go on issuing debt. This would be a constitutional crisis.”
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Asked again, Yellen said: “It’s Congress’s job to do this. If they fail to do it, we will have an economic and financial catastrophe that will be of our own making, and there is no action that President Biden and the U.S. Treasury can take to prevent that catastrophe.”
White House press secretary Karine Jean-Pierre also told reporters last week, “We’re not going to entertain scenarios where Congress fully compromises the full faith and credit of the United States.”
Some scholars and advocates have argued that the administration should try anyway.
Bob Hockett, a Cornell University law professor specializing in finance, said he is confident that at least six Supreme Court justices — and possibly as many as nine — would find in favor of the administration rather than invite a potentially worldwide economic shock. The court could move in under one week, he added, meaning that the uncertainty for bondholders would be short-lived.
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Hockett said the risks of unilateral action on the debt limit are smaller than the damage that would come from agreeing to Republicans’ proposals to dramatically cut spending.
“I don’t think the Supreme Court is prepared to bring on global financial calamity by finding in favor of the congressional Republicans,” Hockett said. “I think the Supreme Court would expedite review very quickly on this, and for that reason, I don’t think we’d see terrible turmoil in the markets. I think we’d have more turmoil if we have to wait to see if McCarthy and Biden will come to an accommodation.”
Laurence Tribe, the Harvard law professor and prominent constitutional scholar, wrote a New York Times op-ed on Sunday arguing for a new way of invoking the 14th Amendment to escape the debt limit impasse. Tribe said Biden should argue that Congress has no right to tell the president to ignore the spending laws it approved in the first place, ignoring one law to abide another.
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“I don’t doubt that the interest premium would be steep, but that’s McCarthy’s fault for trying to hold the nation hostage until we’re right at the cliff — or fall over it,” Tribe told The Washington Post in a separate interview.
Peter R. Orszag, who served as the director of the Office of Management and Budget under President Barack Obama and is now chief executive of financial advisory at Lazard, also acknowledged potentially significant “economic and financial” harms from invoking the 14th Amendment but said administration officials should be exploring all contingency plans.
Orszag emphasized the administration should not agree to only lift the debt limit temporarily until next year, as a bill the House passed would do, because that could set the stage for an election-year showdown with House Republicans emboldened to extract concessions.
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“Anyone saying, ‘Let’s jump to this’ — that’s premature,” Orszag said. “But in the world of hypotheticals — which I understand Secretary Yellen, for good reason, does not want to get into — where there is no option without massive negative consequences, the question is which is the least bad.”
There may be other potential downsides. Tobin Marcus, a former Biden policy adviser now at Evercore ISI, an investment advisory firm, pointed out that regardless of the debt ceiling debate, the White House will still need to reach an agreement with Congress to fund the government. The federal government will shut down Oct. 1 without a bipartisan agreement on spending, and there are no widely discussed options for doing that unilaterally.
“Not only are there unanswerable questions about legality and market reaction, but unilateral action on the debt ceiling will make a bipartisan spending deal this fall even harder,” Marcus said. “They may decide at the very last minute that unilateral action is the least bad solution, but it’s certainly not an ideal solution.”
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Source: The Washington Post
