A Government Default is Illegal: This is Why
NEW YORK ( MainStreet) A government default is probably illegal.
That's not to say it isn't going to happen. The government does potentially illegal things all the time, that's why we have a Supreme Court. Yet for all our talk of platinum coins and presidential fiat , we in the media have missed the easiest solution of all to the debt limit showdown: the Treasury should ignore it and keep right on borrowing, because that's what the Constitution demands.
This comes from the Fourteenth Amendment. As others have pointed out, Section 4 of the this amendment reads in relevant part that:
"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."
A growing chorus is urging President Barack Obama to exercise this clause unilaterally and solve the problem of American default. This faction argues that default would tautologically call the validity of government debt into question, since it would raise doubt about if and when America will pay its bills. The Fourteenth Amendment specifically says that can't happen. As such, the President can act on his own authority enforce the Constitution and prevent any default.
The problem is that this line of reasoning skips a step. If the validity clause of the Fourteenth Amendment does apply to the debt ceiling and "shall not be questioned" means "shall not default," then the debt ceiling itself violates the Constitution. It is, after all, a creation of statute not of nature. If we default, it's because Congress required the Treasury to do so. That may be beyond its power to demand.
We've just never been in a position to find out.
What this means as a practical matter is that this crisis doesn't need a special order from the President or any other form of extraordinary resolution. The Treasury should simply carry on business as usual and ignore any Congressional mandate that it do otherwise. Congress legally established the Treasury's borrowing authority when it spent the money. The rest, as they say, is history.
The question is whether the validity clause actually applies to our debt ceiling. Unfortunately, we don't have an easy roadmap to a solution. The Supreme Court has never weighed in on the issue, and it won't this time either , so we're left on our own to figure out the meaning of a deceptively plainly worded document.
A little history is in order. The Fourteenth Amendment was passed shortly after the Civil War, mostly to give us its now celebrated Equal Protection and Due Process clauses. Section 4 has largely become a historical footnote, a few sentences stuck in at the end to settle up the question of wartime debts. Essentially it resolved three then-critical but now irrelevant matters of finance: