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The Nightmare of Extraordinary Measures to Avoid Default

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Back on October 4, Vincent Reinhart wrote in The New York Times’ Deal Book that despite all the political maneuvering currently going in Washington the contingencies to prepare for a default are “a waste because the United States government is not going to default, ever.”

Reinhart argues that government officials will be forced to violate one of three laws or constitutional mandates:

  1. The Second Liberty Bond Act of 1917 that establishes the debt ceiling;
  2. The Federal Reserve Act that prohibits the Fed from lending directly to the Treasury; or,
  3. The 14th Amendment of the Constitution, which holds that the debt of the United States government, lawfully issued, will not be questioned.

Finally, of the consequences, Reinhart writes:

An official anticipating stretching the law ranks alternatives by precedent, punishment as specified in the law and standing as to who can claim a violation of the law. Either a secretary of the Treasury who holds No. 3 as the overriding instruction or a chairman of the Federal Reserve who waives No. 2 saves the global financial system and, at most, risks being impeached or fired. That seems to be a reasonable risk and reward trade-off.

That, however, ignores the real nightmare that would happen immediately after any of those actions were taken to avoid default by the United States Government.

First, let us take impeachment off the table.  Yes, the House of Representatives might well decide to attempt impeachment against President Obama, Treasury Secretary Lew or Federal Reserve Chairman Bernanke.  Yes, it might even pass impeachment on a party line vote that sees 218 or more Republicans vote for one or more articles.  It does not matter because any impeachment would then go to the Senate, where it would be dead on arrival.  The only question there is whether the Senate would go ahead with the formalities of a trial before voting for acquittal or simply acquit immediately.

Now, let us get into the real nightmare.  The moment that any action was taken by Treasury or the Federal Reserve there would immediately be a lawsuit seeking to nullify that action.  Simply put, we would see an attempt to use the courts to uphold the constitutionality of the debt ceiling and declare invalid all actions that violate the statute in question.

Think about that for a moment or two.  We would have the entire world waiting to see whether the courts would throw the government of the world’s largest economy into default.  We would have debt issued by the United States Government where investors would be unsure of its validity.  We would have a world thrown into chaos because the world’s economic system is based upon the premise that debt issued by the federal government is, effectively, a risk-less investment that is as good as actual money.

For weeks, or months, the world would watch courtrooms in the United States and wonder what would happen.  The world would already likely be back in recession by this point and already-slow recoveries would have ground to a halt.  We would now be seeing whether we would be headed for a new global depression and economic chaos.  Ultimately, it would come down to nine unelected justices on the Supreme Court who would decide the fate of not only the United States, but of the world.

That is the real nightmare of extraordinary measures.  That is where House Republicans are taking us.


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/ 25 Comments

25 comments

  1. Mets102

    but rather of the consequences that will flow from such measures and which we must at, the very least, be cognizant of.

  3. JanF

    I remember talk of the Trillion Dollar Platinum Coin as a “solution”:

    The trillion dollar coin is a concept that emerged during the United States debt-ceiling crisis in 2011, as a proposed way to bypass any necessity for the United States Congress to raise the country’s borrowing limit, through the minting of very high value platinum coins. The concept gained more mainstream attention by late 2012 during the debates over the United States fiscal cliff negotiations and renewed debt-ceiling discussions. After reaching the headlines during the week of January 7, 2013, use of the trillion dollar coin concept was ultimately rejected by the Federal Reserve and the Treasury

    I am sure it will be rolled out again.

    The lawsuits, if there is some kind of oddball solution, would likely be worst than the default. One thing: when we get Congress back, we need to get rid of the requirement to raise the debt limit or we need to tie it to the growth of the budget. No other country has this. According to Wikipedia, in 1979 the House of Representatives instituted a rule to roll out new budgets with the debt ceiling increase an automatic part of it, essentially increasing the debt limit to pay for the budgeted deficits. Wow, how adult! That rule was suspended by Republican Houses … but only when Democrats were president.

    This is the Republican intelligentsia on the debt limit:

    From Slate

    “You gotta take Jack Lew at his word, but from the standpoint of [whether] that puts us in default, technically, no,” said North Carolina Sen. Richard Burr. “The federal government still has about 85 percent of the revenues we spend coming in, and all they have to do is prioritize that they’re gonna pay debt service first. And that leaves some prioritization for federal programs. I’m not as concerned as the president is on the debt ceiling, because the only people buying our bonds right now is the Federal Reserve. So it’s like scaring ourselves.”

    This guy is Ted Cruz’s chief of staff:

  4. creamer

    are starting to make noise about how the White House and Treasury can manage not raising the debt ceiling. Its hard to tell if they are just posturing or if they really believe it.

      They also might be setting the table for a default, they will accuse the President of not taking extraordinary measures, or if he does they will impeach. Having no chance to succeed at impeachment will have no bearing on their proceeding. (42 votes to repeal ACA)

       If we drive off the cliff, the biggest question we will have to answer may well be if the American experiment in self government has failed.

  5. michelewln

    “If two or more persons in any State or Territory, or in any place subject to the jurisdiction of the United States, conspire to overthrow, put down, or to destroy by force the Government of the United States, or to levy war against them, or to oppose by force the authority thereof, or by force to prevent, hinder, or delay the execution of any law of the United States, or by force to seize, take, or possess any property of the United States contrary to the authority thereof, they shall each be fined under this title or imprisoned not more than twenty years, or both.”

    The Affordable Care Act was passed by both houses, signed by the President, and upheld by the Supreme Court. So why aren’t the extremists in jail under Seditious Conspiracy who have halted our government opposing the Affordable Care Act?

  6. princesspat

    The Debt Ceiling Denialists

    Some of the current GOP delusions: the deficit is rising (it isn’t); the debt is currently unsustainable (it isn’t); the public wants Obamacare ended (it’s split on even delaying it); climate change has nothing to do with human-produced carbon emissions (it is, according to almost every single reputable scientist examining the issue). Why are we surprised that the people who predicted a Romney landslide a day before he was trounced might actually be prone to believing in things that simply are not true by any empirical, objective standard? That’s the true danger here. Their epistemic closure is now not just threatening them, but all of us.

    ~snip~

    ….. American psuedo-conservatism is about to achieve its paramount goal: the wholesale destruction of the American government and economy. It is, indeed, the only way to return to the nineteenth century. And that, after all, is what they want.

    His piece includes links to other articles. The one written by Bruce Bartlett is sobering.

  7. janicket

    Over at No More Mister Nice Blog, Tom Hilton posits a rule-or-ruin strategy at work in the Republican intransigence:

    “The power play in the House is, simply put, a tacit admission that they’re unlikely to take back the Presidency anytime soon. It isn’t just that they don’t have the Presidency now; it’s that they think they’ve lost it permanently.”

    *********

    “They know on some level they aren’t going to win the Presidency, so they’re going to do the next best thing: destroy it. And so transfer power to the body they still hold (thanks to a playing field skewed partly by gerrymandering and partly by the concentration of Democrats in urban districts)–which they believe they’re going to keep for a long time to come.”

    http://nomoremister.blogspot.c…

  8. creamer

    that will allow them to blame him. Part of this crowd is so ideological, and so incensed that their world is changing, that nothing is as important as beating the President at something.

  9. JanF

    Readout of the President’s Call to House Speaker John Boehner

    Late this morning, the President telephoned Speaker John Boehner from the Oval Office and repeated what he told him when they met at the White House last week: the President is willing to negotiate with Republicans — after the threat of government shutdown and default have been removed – over policies that Republicans think would strengthen the country. The President also repeated his willingness to negotiate on priorities that he has identified including policies that expand economic opportunity, support private sector job creation, enhance the competitiveness of American businesses, strengthen the Affordable Care Act and continue to reduce the nation’s deficit.

    The President urged the Speaker to hold a vote in the House of Representatives on the Senate-passed measure that would re-open the federal government immediately. Citing the Senate’s intention to pass a clean, yearlong extension of the debt limit this week, the President also pressed the Speaker to allow a timely up-or-down vote in the House to raise the debt limit with no ideological strings attached. He noted that only Congress has the authority to raise the debt limit and failure to do so would have grave consequences for middle class families and the American economy as a whole.

    The president held a live news conference at 2pm Eastern. A video and link to a transcript will be added when it becomes available.

    Key quote: “We can’t make extortion routine as part of our democracy”

  11. JanF

    Harry Reid Interview Government Shutdown – An Exclusive Interview with Harry Reid:

    ESQ: What do you think the stakes are here?

    HR: Let’s assume that in the future, Obama’s no longer president, there’s a Republican president. And we Democrats say, “We’re not going to raise the debt ceiling unless you pass background checks. Eighty-five percent of the American people support that, and we are not going to raise the debt ceiling until you pass it.” We cannot leave the full faith and credit of the United States subject to a fight over whatever the issue of the day may be. That has never, ever, in the history of the country been done before. This is the first time.

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