The Debt Ceiling has Teeth



Written By Jonathon Moseley

President Obama should violate the debt ceiling, Nancy Pelosi and other Democrats are urging. Force Republicans to sue in court. Democrats are already violating legal requirements to pass a national budget each year. Republicans would lose even more influence if Democrats broke more laws.

So does the national debt ceiling have ‘teeth?’ What would happen if Barack Obama simply shattered the debt ceiling, to avoid negotiating with Congressional Republicans?

Democrats argue it would take a long time for appeals courts to wrangle through the dispute. Obama could go on spending for years while unpredictable judges sort it all out. In the interim, Obama could get his way.

Democrats are beating the drum that Congress voted for the spending, so Obama faces legal uncertainty. In truth, Congress has not voted for a budget since Obama took office. A temporary Continuing Resolution expires on March 27, 2013. Democrats are fretting about paying debts. But of course new spending is not a debt. Republicans are just gearing up with the revelation that Senator Obama voted against a debt ceiling increase in 2006:

Increasing America’s debt weakens us domestically and internationally. . . . Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.

— Senator Barack Obama, Congressional Record, March 16, 2006.

Now, the real world clashes with ivory tower liberal think tanks and liberal newsrooms:

First, investors would just stop loaning money. Who will buy government bonds that are worthless, null and void? Any Treasury bonds sold in excess of the debt ceiling will be legally invalid. If there is legal uncertainty, investors might be buying worthless pieces of paper. (The U.S. Treasury borrows money mostly by selling bonds. The sale price is the money loaned. In return lenders receive Treasury Bills or certificates as evidence of their loan.)

Investors really won’t have a choice. Many institutional investors are legally required to invest certain categories of funds in extremely low risk investments. This is an iron-clad requirement for many banks, fund managers, and trustees managing funds. Even if a fund manager personally expects that the bonds will eventually be repaid, he or she is not permitted to make a risky investment under a legal cloud. And interest rates would soar to reflect the legal uncertainty.

The invalid T-Bills would be known by their date. Ironically, increased regulation of Wall Street after the ENRON and 2008 collapses would chill risky lending by banks and financial institutions.

Second, Federal managers and officials would probably refuse to cooperate in spending money in excess of the debt ceiling. Federal managers and bureaucrats are governed by the “Anti-Deficiency Act.” Under 31 USC § 1341, et seq., Federal contracting officers or managers must pay out of their own personal funds any contract or obligation unless appropriated funds are available to cover the obligation. The Anti-Deficiency Act provides for personal criminal penalties, potentially. While it is not crystal clear that the act applies, if there is legal and personal risk, don’t expect bureaucrats to become daredevils.

Bureaucrats are bold only to the extent that they are immune from any consequences. They normally can’t be fired. Their salary never changes. But ask a bureaucrat to take personal risk? I spent five years working alongside civil servants. It doesn’t matter what fine speeches Obama gives, government bureaucrats won’t keep spending money in violation of the debt ceiling.

Third, there may also be impeachment — not necessarily of the president, but of the Treasury secretary and officials who actually implement the borrowing and spending. The president won’t personally be spending the money in excess of the debt limit. Bureaucrats and political appointees will.

While the U.S. House may be reluctant to impeach yet another president, they may feel much bolder and more comfortable impeaching an assistant secretary here and there or perhaps a member of the Senior Executive Service (SES) within the civil service.

Fourth, lawsuits could be more swift and powerful than Democrats imagine. Ask Al Gore about the 2000 election, when a groundbreaking case was decided by the U.S. Supreme Court in only a few weeks.

A challenge would be very simple, straightforward, and likely to win. The legal power to borrow money is reserved to the U.S. Congress under Article I, Section 8, of the United States Constitution. Only loans borrowed by Congress are legally valid. The Congress used to vote on each loan individually. Then Congress delegated the power to the U.S. Treasury to borrow money up to a set debt limit (the debt ceiling).

Delegated authority is analyzed differently, and much more narrowly, than inherent authority. So it’s important to grasp that it is Congress’ power that Obama proposes to abuse. Congress’ restrictions on borrowing wield vastly more legal authority. The law is 31 U.S.C. § 3101 modified by 31 U.S. C. § 3101A.

In a lawsuit, an immediate “stand still” preliminary injunction or temporary restraining order would be reasonably likely. That’s because if the government exceeds the debt limit, it would then be pointless to later decide the case.

Before issuing an injunction to stop a threatened violation, courts balance the burden on both sides. Dramatic consequences would arise from not borrowing more money. But the entire lawsuit would become meaningless if the debt ceiling is already violated, and the debt now owing (the avoidance of which is the purpose of the law). So in legal terms, the balance would be in favor of a “stand still” injunction waiting for a court decision.

Washington can easily stop spending money without defaulting on any debts. Contracting officers would simply suspend any new contracts, and not ‘obligate’ any more funds. Discretionary grants and contracts, new purchases and new hires would be frozen first, with non-discretionary entitlement programs established by formulas in the law necessarily having priority. Social Security and Medicare would get preferential treatment because they pay out on a formula defined by law rather than discretionary grants and contracts.

Now, in general, this could all be psychological warfare. By loudly proclaiming the threat of an ugly scenario, Democrats may hope to win everything they want without actually going through the fight.

Traumatized and gun-shy Republicans are the targets of the intimidation. Remember the Stockholm Syndrome. Arguments don’t have to be logical. If Democrats cry “boo” Republicans won’t stop running until they’re hiding deep in the tall grass.

Obama and the Debt Ceiling” in the American Thinker on January 5 exposed the Democrats’ arguments. Future plans to spend money are not debts. Congress has the power under Section 5 to implement the 14th Amendment by legislation, so the debt ceiling trumps Section 4. Section 4 only protects debts “authorized by law, excluding debts exceeding the debt ceiling.

But Democrat threats keep growing louder, as in the Washington Post on January 11, “Democrats urge Obama to bypass Republicans on the debt ceiling.”

So, explaining why the Democrats’ bluff is hollow might help cause the color to return to some Republican faces. Well, we can dream, can’t we?

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Jonathon Moseley is a Board member of the Northern Virginia Tea Party, and Executive Director of American Border Control. He served as Executive Director of the Legal Affairs Council. Moseley began his political activism as co-chairman of the Reagan/Bush re-election campaign for the University of Florida with Tony Ring, and joined the Speaker’s Bureau for High Frontier (which created Ronald Reagan’s Strategic Defense Initiative for missile defense), later working for High Frontier. Moseley was second in command of the Center for Peace in Freedom under John Kwapisz, which was created by the Heritage Foundation. Moseley has worked in dozens of election campaigns, including serving as campaign manager and treasurer for Christine O’Donnell’s 2008 nomination contest for the United States Senate from Delaware. He is also a criminal defense attorney in Virginia, also having extensive experience in general litigation of all kinds. He was a missionary to Eastern Europe after the fall of the Soviet Union, and also taught business there. Mr. Moseley studied Physics at Hampshire College, then earned a degree in Finance from the University of Florida, where he was also a columnist for the university newspaper, and a law degree from George Mason University.