By Mitch Gurney

July 31, 2011

The probability that the debt ceiling crisis, while certainly a serious matter, is being orchestrated into a bigger crisis to achieve a variety of political agendas seems more likely as events continue to unfold. One of the more compelling arguments that adds merit that this is a staged crisis is the legal aspect, which pertain to the powers vested with the President.

In Debt Limit Analysis we step aside the finger pointing and fear mongering dominating Washington and the nation and present resources for the reader that if reviewed puts the issue into context and provides insight into the options available to the Treasury in the event an agreement is not reached by Aug 2. Clearly because the Treasury will be able to prioritize the bills the government will not shut down nor go into complete default.

Here we present a legal perspective of the authority vested in the President.

The Pen offers a compelling argument in, The President Can and Must Invoke 31 USC 3102 To Pay Our National Debts:

There has been some talk that the President can act unilaterally to raise the nation debt limit based on Section 4 of the 14th Amendment to the Constitution, which provides in pertinent part that “The validity of the public debt of the United States, authorized by law … shall not be questioned”. The argument has been made that since Congress has ALREADY authorized BY LAW each obligation represented in the national debt, by appropriating the funds for various expenditures, any overall “debt limit” is artificially redundant. It would be like writing a bunch of checks and then refusing to deposit the funds in your account to cover them. While a constitutional challenge of the debt limit law may be a defensible argument in the spirit of the 14th Amendment it is not unequivocally compelling, as the 14th Amendment does not expressly authorize what proponents are asking the President to do.

With this context, it is astonishing that apparently nobody has bothered to read the text of Public Debt Law of 1941 itself, embodied in 31 USC 3101, which is what codifies a national debt limit. That law states that
“The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) may not be more than [some arbitrary huge number] . . . “
Please take careful note of the words “EXCEPT guaranteed obligations held by the Secretary of The Treasury”. By undeniably clear law as passed by Congress, such obligations are NOT constrained by any so-called debt limit. Now all you have to do is run your finger down to the very next section 31 USC 3102 [Bonds] and you will read
“With the approval of the President, the Secretary of the Treasury may borrow on the credit of the United States Government amounts necessary for expenditures authorized by law . . . “
By this section Congress gives the President the EXPRESS, inherent and unilateral authority to direct the Secretary of the Treasury to incur obligations to cover all expenditures authorized by law, which is to say the sum of the appropriations bills Congress has already passed. And as we have just so clearly demonstrated such obligations are immune from any so-called debt ceiling limitation. Surely there is some White House attorney smart enough to figure this all out as we have.

The Pen raises a reasonable point; “surely there is some White House attorney smart enough to figure this all out as we have.” You would think that would indeed be the case.

From this context I suspect the latest Real News Network interview with Tom Ferguson, who teaches at UMass Boston, and is a senior fellow at the Roosevelt Institute, pretty much summarizes this when stating:

All the insiders in DC already know the outcome of Debt Ceiling Debate…at this point it’s now like professional wrestling…that is to say…each side’s doing it to stir up the fans on each side, but I think the end is probably fixed. Now, unfortunately, most of the audience doesn’t realize that, and I’m not sure we’re going to like the way it comes out. I mean, my take is if everybody at the moment is still demonstrating for their constituency, at least on the Republican side–that is to say, there’s lots of Tea Party people, you know, threatening to cut the budget down to, I don’t know, Calvin Coolidge dimensions or something like that. Now, the Democratic side’s a little–somewhat different. I mean, there aren’t many folks there standing up for sort of normal Democratic principles.

Mr Ferguson believes Obama will cave in to Republican pressure as he has did with the Bush Tax C. And in keeping within the constructs of our political flow chart it is noted in the interview is that the American Chamber of Commerce and most of the larger business groups in the country have very publicly told the Republicans and the rest of Congress that they cannot do anything but raise the debt ceiling.

This orchestrated crisis has given added fuel to drive the Republicans starve the beast agenda launched in the Reagan era and which we wrote about in The Battle over Raising the Debt Ceiling – What might be going on? But the Democrats have their agenda as well, primarily to raise revenue by raising taxes on the rich.

Paul Craig Roberts who we featured in the Battle over the Raising the Debt Ceiling, writes in his latest article Disastrous Outcomes from an Orchestrated Crisis:

Republicans have created a totally unnecessary crisis and turned it into compelling political theater.  Will the US default?  Will entitlements be slashed?  Will Obama seize the power of the purse from Congress in order to save the dollar and the US credit rating?  None of these questions needed to arise.

In early June, Roberts had warned this very charade would occur noting in Hail Caesar:

Republicans will blame the budget deficit and accumulated national debt on Medicare and Social Security. Wall Street sees billions of profits in privatizing either, and debt rating agencies will oblige their Wall Street paymasters by opining from time to time that US Treasury bonds might be downgraded unless “entitlements can be addressed and the deficit brought under control.”

Democrats will say that the budget deficit cannot be addressed without an increase in tax revenues, especially from the rich whose incomes have exploded upward while their tax rates have declined.

All the while the pressure of an approaching deadline for default will be used to reshape the US social contract, most likely in the further interest of the rich.

Meanwhile as Congressional leaders and the White House continue to work toward some sort of compromise indications are as Ferguson suggest, that Obama will cave to Republican demands, Rank-and-File Remain Wary as Debt Deal Begins to Emerge

Though the package would avoid a second debt-ceiling vote early next year as Obama wanted, it calls for substantial spending cuts with almost no way of forcing accompanying revenue increases in return. The plan would include $2.4 trillion in spending cuts upfront, including $1 trillion in war savings over the next decade and $400 billion in saved debt interest payments — two budget maneuvers conservatives have labeled little more than accounting gimmicks. In addition, the plan would call for a Senate vote on a constitutional balanced budget amendment, which is unlikely to pass, and the formation of a special deficit commission to find an additional $1.8 trillion in savings by Thanksgiving.

For weeks, the sticking point on the commission has been finding an enforcement measure acceptable to both parties. If another vote to raise the debt ceiling is not hanging over lawmakers’ heads, forcing action on the deficit, an equally powerful incentive had to be found. Republicans argued — seemingly successfully — that the trigger should be an across the board cut if the commission deadlocks. The new agreement touted by McConnell would focus those cuts on entitlements (opposed by Democrats) and Pentagon spending (opposed by Republicans). Democrats fear that Republicans will name six staunchly anti-tax members to the 12-person commission, ensuring it deadlocks and thereby forcing the cuts. They believe Republicans are more against increased revenues than defense cuts.

Overall, there is a sense of disappointment among Democrats on Capitol Hill. They feel Senate Majority Leader Harry Reid had Republicans on the ropes before President Obama caved to McConnell demands. The historic deal could help Obama win reelection by denying Republicans sole ownership of the mantle of fiscal responsibility, but there may be substantial costs. Cuts to entitlement benefits will neuter the Democrats’ argument that Republican proposals like Paul Ryan’s budget represent a partisan plot to end the popular programs. And, the latest compromise, if agreed to, is sure to anger and dispirit Obama’s progressive base.

In fact, the deal is so unpopular on the left, some Democrats in Congress are wondering if it can attract enough votes to pass even if blessed by the President. If all Republicans in the Senate vote for it, they will still need 13 Democratic votes to overcome a filibuster. Liberals’ patience might be running out, but so too is the time remaining to raise debt ceiling.

Mitch Gurney

See related Headlines:

Bipartisan “Russian Roulette” and America’s Federal Debt: The Debt Ceiling Is Unconstitutional

Congress closing in on a deal to avert US default