For months Treasury Secretary Tim Geithner has been warning Congress that a failure to raise the federal government’s $14.3 trillion debt limit would have “catastrophic economic consequences.” But now that financial Armegeddon is supposedly just weeks away, Geithner is raising the possibility that he may ignore the law entirely. And if he did, he’d get away with it.
At a May 25th public event, Geithner pulled a copy of the U.S. Constitution from his pocket and read from section Four of the 14th amendment: “The validity of the public debt of the United States, authorized by law, including debts incurred for the payments of pension and bounties for services in suppressing insurrection or rebellion — this is the important thing — shall not be questioned.”
What Geithner appeared to be arguing, and what many on the left are now arguing, is that the debt limit, passed as part of the Second Liberty Bond Act of 1917, violates the 14th amendment’s prohibition against congressional legislation repudiating the nation’s debts.
On the legal merits, Geithner’s theory is absolutely absurd. In 1935, the Supreme Court held in Perry v United States, that section Four of the 14th amendment applied only to payments for debts incurred “by virtue of the power to borrow money on the credit of the United States.” In other words, while the federal government is required to pay its creditors, it is in no way constitutionally required to carry out other spending.
And the Treasury Department has more than enough cash to pay our creditors. According to the Bipartisan Policy Center, while the Treasury Department will take in $172.4 billion in revenues this August, they only have to pay out $29 billion worth of interest payments on Treasury securities. That leaves more than enough money to also pay active-duty troops, veterans, Social Security, Medicare, and Medicaid. Almost all other federal government spending, however, would cease.
But what if President Obama ordered Geithner to sell enough Treasury bonds to cover the rest of the government’s scheduled spending? Who could sue to stop him? And would the courts have the courage to say no?
The first hurdle would be identifying someone with standing to sue Geithner in federal court. To press any claim in court, a plaintiff must first show sufficient connection to, and harm from, the action being challenged. A general worry about the threat deficit spending poses would not be enough.
Someone who invested in a bond fund that bet against U.S. Treasury bonds, as Majority Leader Eric Cantor, R-Va., reportedly has done, might qualify if he could prove Geithner’s illegal bond sale caused him to lose money. A Treasury employee who refused to follow Geithner’s order to sell the debt, and was then sanctioned, might also qualify.
But even if standing was met, courts have been reluctant to assert themselves against this administration on economic matters. Legal scholars agree that the Treasury-led restructuring of Chrysler’s debt in bankruptcy was illegal. But despite the fact that some Indiana pension funds were able to prove harm (they lost billions), the Supreme Court declined to review the merits of the case after then-Solicitor General Elena Kagan argued “As an economic matter … blocking the transaction would undoubtedly have grave consequences.”
The economic consequences of the debt limit are far greater than the Chrysler bail out. Geithner got away with breaking the law the first time, there is every reason to believe he will get away with it again.