Is the Debt Ceiling Constitutional?

Is the Debt Ceiling, which we hit today, constitutional?  The Treasury has a few accounting moves up its sleeve that will prevent an actual default until early August, including stopping contributions to the Federal retirement programs. However, even doing that might be constitutionally questionable.

Here is the relevant text of the 14th amendment:

“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.”

I don’t think the issue of paying for debt incurred by the South to pay for the civil war is relevant anymore. The key question is what it means to question the validity of the public debt of the United States. Just raising the question would seem to be something protected by the first amendment, and I don’t think the framers of the 14th amendment meant to carve out a exemption to the free speech clause just for this issue (if it did, there would be a whole lot of bloggers in trouble today).

It seems to me that it has to some sort of official government action that is referenced in that clause. If the Treasury were to fail to honor its obligation to pay interest and principal on time, that seems to me to fit the bill. On the other hand, the executive branch has to make sure that the laws are faithfully executed, and as it stands, the debt ceiling is the law of the land.

Also, the main body of the constitution clearly puts the Congress in charge of both taxing and spending decisions. Those taxing and spending decisions are independent of the debt ceiling, but the debt ceiling is being hit because of those decisions.

The question thus arises: What would happen if the Treasury were to just ignore the debt ceiling, and continue to issue debt? I suspect that the House might move to impeach both Obama and Geithner, but I doubt there would be the votes to convict in the Senate (as we saw in the 1990’s votes about impeachment and conviction will have everything to do with politics).

The other thing that might occur is that the question would fall to the courts. I am not a lawyer, but I do think that this is an interesting constitutional question, and one that the courts probably should address. The threat to simply ignore the debt ceiling would at least give Obama some negotiating leverage in getting the debt ceiling raised without conditions attached to it that are very likely to derail the recovery and send the economy back into recession.

On the other hand, such a move, if actually carried out could precipitate a constitutional crisis, and that uncertainty might also have adverse effects on the market. I doubt that such uncertainty would do more damage to the markets than an actual default would do. The best course of action would be to simply have a clean increase in the debt ceiling, and then address the longer-term deficit problem later.

About Dirk van Dijk 112 Articles

Affiliation: Zacks Investment Research

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

Visit: Zacks Investment Research

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