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The Debt Ceiling Is Not Unconstitutional, Right Now!

letsgetitdone's picture

Today, the MSM noticed that there's an issue of constitutionality related to the debt ceiling. Ryan Grim and Samuel Haass report that some Democratic Senators, including Chris Coons and Patty Murray, have begun to discuss. And they've contacted the White House raising the question of what the President's constitutional obligation would be if Congress refuses to raise the debt ceiling before the Government again must issue debt. Keith Olbermann then picked up the issue in an interview with Grim on Countdown, and Lawrence O'Donnell raised it in part of his discussion with the world's most genial, and persistent deficit hawk, Alice Rivlin on his show. Who knows who will pick it up tomorrow?

A dairy at DailyKos today by Jed Lewison also picked up the issue and opines:

I'm not a lawyer, but given that the plain language of the Fourteenth Amendment is that public debts must be honored, it would seem that if there were conflict between making good on those debts and staying within the debt ceiling, the Constitution would require the government to make good on its debts, trumping the debt ceiling. Given that the financing of a program like Social Security is structured as a public debt, it seems that at a minimum, the debt ceiling doesn't apply to much of the federal budget.

Again, I'm not a Constitutional law expert here, but the key point is that there is an open question about what legal obligations the Obama administration would face if Congress fails to raise the debt limit. Not only has Congress passed legislation that would come into conflict, but the Constitution itself appears to conflict with that legislation as well. Because these are unsettled issues, the White House has a significant degree of latitude in choosing a path forward if Congress fails to raise the debt limit. It certainly shouldn't limit its options by automatically assuming that the debt limit itself is the controlling legal mandate.

In past months I've written about the debt limit and considered various responses to the developing Congressional deadlock and the widely predicted “default” crisis, as well as the constitutionality question. In my view, the debt limit is not unconstitutional in the present context of legislation and constitutional mandates!

The Senators, MSM commentators and Jed Lewison are all right to suggest that the constitutional obligation to pay all US obligations must not be ignored by officeholders. But their suggestion that the debt limit forces the President to choose between complying with the debt limit, and ceasing to issue more debt, or complying with his constitutional mandate to uphold the constitution, and issuing further debt to pay US obligations, is not the case. It's a false choice. It assumes that the only way for the Government to generate the money it needs to allow it to spend Congressional appropriations, is to borrow more of its own currency back by issuing more debt instruments and selling them.

There is another perfectly legal way, legislated by Congress, for the President to create the revenue he needs to pay US obligations, however, and to make the debt limit irrelevant. And because there is, there isn't any kind of constitutional crisis here. There is only an obligation for the President to use the means that Congress, in its wisdom, has already provided to pay our debts.

What is that way? It is called Jumbo Coin Seigniorage. Congress has granted to the Executive the authority to employ jumbo coin seigniorage to replenish the Treasury General Account (TGA) at the Fed and pay all of the obligations of the United States without issuing more debt or even, technically, doing any more “deficit spending.”

As beowulf puts it:

The Secretary has rather broad authority to mint coins, Congress was apparently feeling generous when it authorized platinum coins in 31 USC 5112(k) (“with such specifications, designs, varieties, quantities, denominations, and inscriptions and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe…”). If deficit spending was paid for (eliminated actually) with miscellaneous receipts, revenue generated by selling the Fed jumbo denomination coins, and since the Federal Fund Rate can now be pegged with Interest on Reserve payments in lieu of selling Treasuries to drain excess reserves, Tsy could fund govt operations indefinitely without ever raising the statutory debt limit.

Beowulf might also have pointed out that national debt can eventually be reduced to near zero with the constant use of coin seigniorage. Details of how coin seigniorage would work with citations to legal issues involved are in beowulf's post; and an outline of steps in a procedure is in my recent posts here and here. A more modest proposal than mine on how to use jumbo coin seigniorage to avert the debt ceiling crisis by using newly minted platunum coins to retire $2 Trillion of debt now held by the Federal Reserve was recently offered by wigwam.

So, since the Executive has a way of paying all obligations without deficit spending by using coin seigniorage and its Constitutional duty is to uphold both the Constitution and the laws of the United States, it follows that the Executive must use coin seigniorage to replenish the TGA as necessary to implement all the spending appropriations passed by Congress and all the previous obligations of the United States.

What else is there to say? The President has no choice in this matter. Congress has appropriated money for particular purposes. It has also passed a debt ceiling, and passed a law providing the Administration authority to engage in jumbo coin seigniorage to get revenue necessary to spend appropriations in the presence of the debt limit. The President is also bound to uphold the Constitutional mandate in the 14th Amendment that no one may question the validity of the debts of the United States, which certainly also implies, in the context of the debt ceiling, that it is the obligation of the President to remove any basis for such questioning by using the authority granted to him to raise all revenue necessary to spend Congressional appropriations. So, what is he waiting for? He should end the faux “debt ceiling crisis” by ordering the Secretary of the Treasury to immediately use jumbo coin seigniorage, while ignoring the inevitable teeth gnashing by those holding the nation hostage, to provide the TGA with a balance large enough to cover all appropriations already passed by Congress!

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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beowulf's picture
Submitted by beowulf on

Your (and Wigwam's) idea of using coin seigniorage to retire the debt by $2 trillion is a smarter play than mine that we use it to fund new spending without adding to the deficit. Let's save that trick for the balanced budget amendment. :o)

letsgetitdone's picture
Submitted by letsgetitdone on

Wigwam's variation on your idea is deliciously clever, because it's hard to claim that it will cause inflation inflation. The Tsys are just sitting there at the Fed, and aren't used for anything. If the Treasury uses coin seigniorage to generate the coins it uses to retire that debt, the bonds get "burned." The coins go into a Fed vault, taking up much less space and the effect on the economy is nil. But the debt issued is $2T less, and the debt limit is far away.

I think the important aspect of my argument above is that the President has a constitutional obligation to use coin seigniorage. That's the legal way out. And the existence of that way out means that the debt limit isn't unconstitutional. Congress certainly has the right to say there shall be no more new debt, as long as it provides a way to pay all the Government obligations it has appropriated. Well, it has, whether it intended to do that or not. Now it's up to the President to use that way or fail in his constitutional oath of office.

beowulf's picture
Submitted by beowulf on


Cujo359's picture
Submitted by Cujo359 on

The government prints more coins, then pockets the difference between the face value of those coins and the cost of manufacturing and distributing them.

Assuming I've got that right, how is this different from the government printing more money?

letsgetitdone's picture
Submitted by letsgetitdone on

it's not. However, the Government only has a limited capability to print money, and if it uses this money to deficit spend it has to borrow dollar-for-dollar, which brings up the debt limit. On the other hand the profits from coin seigniorage are considered miscellaneous receipts, i.e. revenue by GAO, so, from an accounting point of view no debt is involved.