Skip to content
Search

Latest Stories

Top Stories

Default? Financial crisis? Political theater?

Default? Financial crisis? Political theater?
Getty Images

David Butler is a husband, father, grandfather, business executive, entrepreneur, and political animal. To learn more about his current entrepreneurial effort go to www.yourtrueview.com.

Once again, the U.S. government approached a legislatively mandated debt ceiling, as politicians and media members alike decried “default” and “financial crisis.”


The Republicans are holding government spending hostage, arguing we must reduce our deficits. The Democrats are claiming that government spending is too important to be subject to such draconian controls. Though the concept has been rejected by every prior administration since the debt ceiling was established in 1917, the current administration seriously considered the position that the 14th Amendment to the Constitution allows the president to ignore the legislatively created ceiling. Some even argue that the 14th Amendment makes any debt ceiling unconstitutional. It seems the administration only rejected that path due to concerns about a long, drawn-out court battle that would create financial instability.

The tentative agreement announced by Biden and McCarthy over the Memorial Day weekend suggests there will be no default. There will be no financial crisis. But there is plenty of political theater. And the 14th Amendment does not make the debt ceiling unconstitutional, but rather makes defaulting on our debt unconstitutional.

Sign up for The Fulcrum newsletter

So, what does that amendment really say? Adopted in 1868 as one of the post-Civil War Reconstruction Amendments, it is also one of the wordiest, addressing issues such as citizenship and civil rights, apportionment of representatives, and some other issues.

Section 4 briefly addresses the public debt 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.”

The second sentence looks back in history not forward and is not at issue here. It simply states that the federal government was not responsible for paying anything for the emancipation of slaves, whether by reason of Lincoln’s war-time emancipation proclamation or by adoption of the 13th Amendment, and that debt incurred by the Confederate states to fund their civil war efforts, much of which was borrowed from large British and French banks, would never be paid.

The first sentence looks not just back towards the debt incurred by the federal government prior to and during the Civil War, but also looks forward to any and all debt, including pensions (certainly including Social Security obligations and possibly Medicare payments as well). The key provisions of this are that the debt must be “authorized by law” and it “shall not be questioned.”

“Authorized by law” means that the amendment only applies to that debt that has been approved in a congressional bill and signed by the president. That is what “law” is. It does not say that the president can create additional debt by executive order, or by ignoring limits established by Congress. This language is arguably a nod to Article I, Section 8 of the Constitution, specifying that Congress shall have the power “To borrow money on the credit of the United States.” The president has no power to borrow without Congressional approval.

Congress could theoretically pass an omnibus type of bill that says that any debt created by Congressionally approved laws (that is laws that result in expenses that exceed revenues), shall be considered valid public debt of the United States. Problem solved. No more debt ceiling. But they have not done this since the debt ceiling legislation was first established in 1917 to make it easier to borrow money in support of our involvement in the First World War (prior to that Congress had to approve every time the government borrowed money).

“Shall not be questioned” means that the federal government is obligated to pay those debts that have been authorized by law. So how can we interpret that? Absent a complete breakdown of society and the federal government, the debt must be paid. The interest must be paid, pension-related obligations such as Social Security must be paid, and as treasury bonds, notes, and similar obligations mature, they must be repaid (whether from current revenues or by selling new security instruments). The government has no choice, and as the executive officer of the government, the president must ensure that the Treasury Department pays these obligations regardless of the circumstances.

In other words, the government cannot default on its debt absent a complete failure by the president to carry out his executive duties. So why all the cries about default and a financial crisis? Because most politicians are prone to political theater at the expense of doing their job in a rational way. No politician – Republican, Democrat, or other – should be fear-mongering about a financial crisis. And the executive branch, regardless of party, should be prepared to meet the government’s obligations under these circumstances. They should also be reassuring both citizens and the global financial community that the U.S. will always pay its debt obligations.

Some may claim that without raising the debt ceiling we will run out of money and be unable to pay our bills. But the amendment says the public debt must be paid, including debts incurred for payment of pensions (which clearly includes Social Security obligations and other federal government pension arrangements). It does not say that other government expenditures must be paid, even if those expenditures are driven by a legislatively approved program. And there is plenty of money to pay the public debt.

Making sense of federal government income and expenses can be a daunting task and different sources will provide different numbers. But here are some reasonable estimates. In 2023, the federal government is expected to have monthly revenues of approximately $400 billion. Interest payments on government debt securities will be at least $30 billion and perhaps as much as $40 billion per month.

According to the Social Security Administration, the government paid over $111 billion in benefits in December 2022. With benefit increases this year the average will likely be around $120 billion per month. There are also several billion dollars per month spent on government pensions, including veteran retirement programs. But this still leaves at least $230 billion per month. If we treat Medicare as part of the public debt (and estimate it at $70 billion per month), then we have $160 billion per month available for non-debt expenditures. The problem of course is that the government is on track to spend over $240 billion on all those other programs each month. This includes other healthcare costs (Medicaid, CHIPS, and Affordable Care Act subsidies), national defense, a broad range of social services, transportation, foreign aid, and other general government expenses. Absent an increase in the debt ceiling, it is the responsibility of the president and his administration to decide which programs to cut, suspend, or delay, and which positions to furlough, to ensure that our debts can be paid.

So yes, there would be pain. There would be complaints. There are also politicians that fear voter backlash. And for this reason, an agreement will be reached. But let’s demand more than fear-mongering and political theater. Let’s demand they do their job in a responsible manner. They should not threaten us and the international financial community with default. Instead, they should acknowledge that the U.S. will never default on its debt and that avoiding default while the issue is worked out may be painful to some. If they cannot do that, they do not deserve our vote.

Read More

Department of Educaiton
What would it mean if President-elect Trump dismantled the US Department of Education?
Flickr

What would it mean if President-elect Trump dismantled the Department of Education?

In her role as former chief executive of World Wrestling Entertainment, Linda McMahon oversaw an enterprise that popularized the “takedown” for millions of wrestling fans. But as President-elect Donald Trump’s nominee for secretary of education, the Trump loyalist may be tasked with taking down the very department Trump has asked her to lead.

If Trump does dismantle the Department of Education as he has promised to do, he will have succeeded at something that President Ronald Reagan vowed to do in 1980. Just like Trump, Reagan campaigned on abolishing the department, which at the time was only a year old. Since then, the Republican Party platform has repeatedly called for eliminating the Education Department, which oversees a range of programs and initiatives. These include special funding for schools in low-income communities – known as Title I – and safeguarding the rights of students with disabilities.

Keep ReadingShow less
Hand-drawn Pilgrim hat with the words "Happy Thanksgiving"
mushroomstore/Getty Images

This Thanksgiving, it's not only OK but necessary to talk politics

This Thanksgiving, do not follow the old maxim that we should never discuss politics at the dinner table.

Many people's emotions are running high right now. Elections often bring out a wide range of feelings, whether pride and optimism for those who are pleased with the results or disappointment and frustration from those who aren’t. After a long and grueling election season, we need to connect with and not avoid one another.

Keep ReadingShow less
Happy family raising toast while sitting together at dining table during Thanksgiving
The Good Brigade

Forget the survival guides: Politics is rarely an issue at Thanksgiving

Thanksgiving is often portrayed as a minefield of political debates, with an annual surge of guides offering tips to "survive" political conversations at the dinner table. But how useful are these guides?

Research actually shows that most Americans neither want nor need the abundance of advice. While the vast majority of Americans celebrate Thanksgiving, relatively few want to talk about politics over the holiday. A 2022 Axios/Ipsos poll found that 77 percent of Americans believe Thanksgiving is not the right time for political discussions. Somewhat similarly, a 2023 Quinnipiac poll found only 29 percent of Americans say they are looking forward to discussing politics at Thanksgiving, less than half the number who say they are hoping to avoid discussing it.

Keep ReadingShow less