The Law and the Debt….

I had lunch with an old friend yesterday–a former law school dean and noted legal scholar–and our talk turned to the current impasse over the debt ceiling. He asked me whether I was familiar with a 1935 Supreme Court case titled Perry v. United StatesI admitted I’d never heard of it.

Perry, it turns out, is pretty compelling precedent for the proposition that the United States cannot constitutionally be permitted to default on its obligations. The Court relied primarily on language in Article 1, Section 8 of the Constitution, although it also cited Section 4 of the 14th Amendment. My friend sent me a legal memorandum that he had co-authored on the subject. That memorandum included the following paragraph:

In short, the core holding of Perry is that the constitutional “Power” of Congress “To borrow Money on the credit of the United States” carries with it a concomitant duty to pay ― and not to default. While some members of the Court held differing views on the correct factual resolution of the Perry case, all nine justices, including four dissenters, agreed that the United States could not, within constitutional limits, default on its financial or contractual obligations.

The case has been cited with approval by the Supreme Court several times–most recently in 2005.

My friend’s legal conclusion is blunt: If default would be unconstitutional, then the Debt Ceiling Act is unconstitutional if it is read to require default. Since there are a number of federal statutes that confer power on the President and Secretary of the Treasury to borrow money–statutes that are routinely used when the debt ceiling isn’t an issue– and since an unconstitutional Act is void, those statutes would (again, according to the memo) continue to authorize the President to pay the country’s debts.

Makes sense to me, but this is definitely not an area of expertise for me.

Of course, if the President were to follow Perry and pay the nation’s debts, the Obama haters would immediately move to impeach (they would impeach him for breathing if they could).

It’s hard to envision a successful impeachment for actions taken to avoid an international economic catastrophe–but then, it used to be hard to envision a Congress as insane as this one.

11 thoughts on “The Law and the Debt….

  1. President Obama referred to the fact that this country is required to honor all debts on time; he also stated that the term “debt ceiling” is misleading. If Congress cannot Constitutionally refuse to pay debts – why are they doing it. The demand to defund the ACA is also unConstitutional, a bill that has passed and been enacted cannot be arbitrarily defunded. Why are they trying to do this after more than 40 attempts to repeal the ACA? I know this demand has supposedly been removed from negotiations but…if the Senate sends a bill to the house with only temporary measures to stop the shutdown and the sequester; this leaves is in the same position we are today and being forced to go through this again…and again. All of us have been forced to raise our personal “debt ceiling” this year, and the years before. John Boehner does not want to lose Tea Party backing so he has refused to order a new vote on the original bill submitted by the Senate…he knows he would lose. A Republican stated yesterday stated they fear the Senate will send a bill to the House which will be passed and put Boehner in the position of possibly losing his job as Speaker. So; the future of this entire nation, as well as financial conditions world-wide, hinge on John Boehner’s job position. Can this be found anywhere in the Constitution? I think not! President Obama must be cautious; he has been fighting the money-backed GOP group who have planned to destroy him since he was elected. F**k the Constitution, this nation and all they stand for is being upheld by the Supreme Court ruling on Citizens United. They are covertly playing their race card to destroy one man; twice elected to the Presidency.

  2. JoAnn Green, first I agree entirely, but can you cite a source for your assertion that “a bill that has passed and been enacted cannot be arbitrarily defunded”? I gut agrees completely. I am just curious who/what/where that is expressly stated so that I may claim, and defend, the same stance as your own. .

  3. I have a question Professor…I’ve also read up on this a bit as I saw it mentioned somewhere a few days ago but also read that President O doesn’t believe he has the constitutional authority to “take care” of the problem himself. Knowing that he is a very intelligent man and a former Constitutional Law professor, I was curious if you had any insight into how he might be reading that case differently? Just a wonky question. Thanks!

  4. This whole kerfuffle should be over shortly…as soon as the Tea Party element of the Republicans can figure out how to take complete credit for ending the shutdown.

  5. zwbrsq; President Obama made this reference in his speech last week, the same speech when he stated that the term “debt ceiling” is misleading. Sheila refers to Article 1, Section 8 of the Constitution and Section 4 of the 14th Amendment. Understanding language in the Constitution and all Amendments goes to Sheila’s blog Who is an Originalist and differing opinions as to meanings of generalized language in both. Article 1, Section 8 of the Constitution states; “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States;…” I, not having higher education and believing President Obama’s statement, read this to mean that our taxes are collected to pay our debts, the ACA is a debt in that it is a bill that has been passed and enacted. I have kept a small copy of the Constitution and Amendments on my coffee table since the summer of 2008 to refer to trying to understand both parties claims – the GOP lost out on knowing what they were talking about before the 2008 election. I worked for local Republican administrations for 20 years and most of the views of the Democratic party today follow those of the Republican party during the Hudnut administration. It deeply saddens me to see what is happening to Congress; it also frightens me as a 76 year old, deaf, disabled woman with COPD living on a limited income, knowing that John Boehner has the money and the power to take away what little security I have.

    Rusty; President Obama referred to the fact that it requires agreement and signing of any and all bills by both Senate and House of Representatives to pass it for his signature to enact. He does not have the power to ORDER Boehner to call for another vote on the bill from the Senate which they refused and set the current conditions. He has asked, stated his reasoning and asked for actual negotiations to resolve current conditions. Boehner will not order this vote because Republicans in the House are now seeing what they have wrought with their partisanism rather than using the Constitution coupled with logic and common sense. They seem to want a fight to the death; the death of the security of this entire nation…attitudes and actions such as theirs brought about the Civil War.

  6. Thanks Joanna. I understand that the Senate and House would have to pass a bill for him to be able to sign, but I’m curious if there has been any information on President Obama’s reading of Perry v. United States because from what Professor Kennedy states, he could end the whole mess if it came down to it (it being Oct. 17th and the brink of something disastrous happening in global markets). Knowing he was a respected Constitutional Law professor, I’m sure he’s familiar with the case; however, I doubt he would make that move even if he believes he can because of the outrage that would ensue from his “dictatorial” discretion. Oh well, I guess we’re all participants (willing or unwilling) in the 50 bloc’s game of “government”

  7. Rusty, At this point, I imagine the political considerations weigh most heavily; by that, I mean that even if the President DID agree that Perry required him to pay the nation’s bills (and there is a split among scholars on that point), he would be foolish to signal such a conclusion at this stage of events. It would let the crazies off the hook—they could allow the default to occur, counting on the President to save them from the consequences of their own foolhardiness.

  8. Yes, I largely agree. Just curious if he had weighed in on the case/issue, though I doubt he publicly would considering how visible that would be. It’s strange to feel bad for a President, but his time in office has been unlike any of his predecessors I presume. Really hope things change for the better in 2014. Hopefully this R implosion will linger in the minds of voters, but seeing as most Americans only remember what was for lunch yesterday, I’m not holding my breath.

  9. If this line of thinking is correct, then wouldn’t it make sense for someone in the President’s camp to sue to have the Debt Ceiling Act overturned as unconstitutional? There probably isn’t time to get it done before Oct 17, but it might fix the issue before the next round of brinksmanship.

    I don’t know the full history of the Debt Ceiling Act, but I am guessing it was passed with best intentions, just like the promises to eliminate ear-marks. The cure seems to be worse than the disease in both cases.

  10. “Perry, it turns out, is pretty compelling precedent for the proposition that the United States cannot constitutionally be permitted to default on its obligations. The Court relied primarily on language in Article 1, Section 8 of the Constitution,”

    Silliness. Of course, the United States can default on its obligations, and some court case is NOT the Constitution.

    Article 1, Section 8 of the Constitution reads, in part “To borrow Money on the credit of the United States;” “Credit” implies creditworthiness; creditworthiness implies risk. Of course, some self-serving government organ is going to issue an “opinion” ensuring that it and its own benefit from a freely running spigot. Such self-serving statements of vested interest are not, however, amendments to the Constitution.

    Further, the Constitution was not written in anticipation of fiat money. The Constitution contemplated only gold and silver.

    It would do us well if the United States defaulted on its debt. Do my readers know who owns virtually all the debt? Not the Chinese. Not mutual funds. Not individual investors. Overwhelmingly most of the debt is purchased and owned by the Federal Reserve, a private corporation established in Delaware in 1913. Who owns the Federal Reserve? Ah, now there’s your answer.

    U.S. taxes are taken from your paycheck and deposited with the U.S. Treasury. The Treasury then takes your taxes and pays the interest on the bonds it sold. Who owns the bonds? See above. Overwhelmingly, the Federal Reserve.

    Since 1913, the Federal Reserve Act has been a lovely means of transferring money from U.S. Citizens to the shareholders of the Federal Reserve.

    Default on that scheme? You bet. In a second. We need a new Andrew Jackson to put a swift end to this con game.

  11. “It would let the crazies off the hook—they could allow the default to occur,”

    Ahem, Professor, it’s not proper polemic form to refer to a dissenting opinion regarding fiscal policy as “crazy.” There’s a cadre of sharp economists who eagerly welcome a default and a concomitant reduction in government size and intrusion.

    This “default” business is nonsense, anyway. Every day, the United States has tax receipts of $8.219 billion. (1) That’s plenty to cover all the necessary expenses of the government, and more. expenses. Learn to run the government on that amount.

    (1)http://www.forbes.com/sites/jeffreydorfman/2013/10/03/dont-believe-the-debt-ceiling-hype-the-federal-government-can-survive-without-an-increase/

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