What happens if Congress fails to lift the ceiling on the national debt?
Some Republicans claim that a government default will not be disastrous for the economy. Most Democrats and Republicans do not agree. Defaulting on the debt might mean the collapse of the American economy and shockwaves throughout the world.
Yet the two parties cannot seem to make an agreement. Democrats want some tax increases while Republicans only want budget cuts. Default seems increasingly possible come August. It is an extremely dangerous proposition. Over half the federal debt is owned by foreigners. The dollar and solvency of the U.S. government are one of the foundations of the international economy. By pulling the legs from the table of the world economy by defaulting on the debt, the damage will certainly be long-lasting and decidedly disastrous.
The disaster may happen. However, it may not happen because of an untested Constitutional provision in the Fourteenth Amendment. The debt ceiling mandated by Congress may be unconstitutional because the Constitution trumps any law passed by Congress.
Section four of the Fourteenth Amendment states:
“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.”
Economist Bruce Bartlett states that the failure of Congress to raise the debt ceiling would create a national emergency that would allow for extraordinary steps by the President. Specifically, the President could order the Secretary of the Treasury to continue selling bonds to fund the debt. By citing the Fourteenth Amendment, Obama could claim that Congress cannot constitutionally deny the payment of the public debt. Since the revenues are not enough to cover all the expenses in the federal budget, the White House would continue to raise funds to pay for the debt by selling Treasury securities.
Some would undoubtedly challenge the President’s actions and probably call for impeachment. How the impeachment plays out is anyone’s guess, but it would not go any further than that because the Senate will not remove Obama from office.
The constitutionality of the President’s actions would ultimately be determined by the Supreme Court. It will take months, perhaps years for that to happen. It is also unlikely that the Supreme Court would rule against the President. The Supreme Court has given a wide berth to the presidency over the last few years. It is unlikely that there would be five Supreme Court Justices who would want to reign in Obama and put the country into default.