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How to Solve the Debt Ceiling Standoff? Sue Janet Yellen.

A bondholder could simply allege that America failing to pay off its
debts is unconstitutional. There's a good argument for that.

 

 

Mariam Zuhaib/AP Photo

By Jonathan Zasloff

**** Finally, they are discussing it.

The New York Times reports
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that the Biden administration, faced with the Republican Party intention
to hold the global economy hostage over the debt ceiling, is considering
whether the whole thing is unconstitutional.

The words of the 14th Amendment make the strongest argument: "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." One wonders how the framers of the amendment could have
made their intentions clearer without being clairvoyant.

Benjamin Wade, the Reconstruction-era Ohio senator who played a critical
role in the provision's enactment, laid it out: "I have no doubt that
every man who has property in the public funds will feel safer when he
sees that the national debt is withdrawn from the power of a Congress to
repudiate it and placed under the guardianship of the Constitution than
he would feel if it were left at loose ends and subject to the varying
majorities which may arise in Congress."

Some commentators have raised separation-of-powers issues: Can the
president simply ignore a duly enacted statute? And furthermore, will
markets accept unilateral executive action if they are not sure it is
valid? This uncertainty led President Obama to reject the tactic
(unwisely, in my view) the last time the GOP threatened to blow up the
economy.

Both questions can be addressed, because we already have a remedy in
place. It involves suing Janet Yellen.

A bond is a contract between a lender and debtor. The lender provides
money now in order to be paid back with interest later. Secretary
Yellen's announcement on May 1
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crystal clear: The federal government will break that debt contract,
because the debt ceiling statute, by denying the necessary borrowing
capacity to cover debts, forbids the Treasury from honoring its
contracts.

This scenario is not speculation; it is literally the position of the
law as it stands today. If nothing changes, the federal government will
not honor its debts to bondholders. That means that it is time for a
lawsuit against the Treasury, arguing that its refusal to pay the debt
violates the Constitution.

Who would have "standing," that is, the legal right to bring the case to
court? The answer is straightforward: anyone who holds federal
government debt and would therefore be owed money by the Treasury. The
Court's standing doctrine makes this clear. It insists on concrete and
particularized, actual or imminent injury-in-fact, causation of the
injury, and redressability by court action. All three are present here.
If I hold a T-bill, and the Treasury says it will not pay me on June 1,
then I have all concrete and imminent injury necessary to bring a suit.
That injury is caused by the debt ceiling. And it can be redressed by
finding that ceiling unconstitutional, enabling the executive to pay the
government's debts.

**Read all of our debt ceiling coverage here**
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It's one thing to have the president simply ignore the debt ceiling
statute. The markets might get skittish because of legal uncertainty.
But if a court declares the ceiling unconstitutional, that's a
different story. If anything, that would increase certainty and thus
stability. With a favorable ruling, markets would know that Republican
hostage-taking is over.

In moving ahead with the suit, progressives should beat conservatives at
their own game, and choose a venue most likely to support them.
Progressives have no judicial district as lawless as the single-judge
districts in Texas
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that Republicans have repeatedly used, nor should we want one. But there
are two clear possibilities: the Northern District of California
headquartered in San Francisco, where every judge is either an Obama or
Biden appointee, or the District of Massachusetts in Boston, where seven
of the nine active judges are Democratic appointees, even the GOP judges
are well regarded, and every active member of the appeals court is a
Democratic appointee.

Unlike, say, Matthew Kacsmaryk, the Texas judge who recently attempted
to ban mifepristone in a comically bad opinion
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all these judges are respected professionals, and will not simply give
plaintiffs the win for ideological reasons. They will, however,
carefully consider a serious legal claim, and the constitutional
argument certainly is that.

Such litigation might also get an interesting assist: Since the
defendant in this case is the U.S. Treasury, one might genuinely wonder
what sort of defense Treasury will present. If the Justice
Department's Office of Legal Counsel writes an opinion stating that
the debt ceiling is unconstitutional-as it should-one wonders
whether it would present much of a defense at all.

House Republicans, of course, will scream, and will try to intervene. It
isn't clear that they could: They themselves might not have standing
under current doctrine, because Congress often does not have standing to
defend federal statutes. If they do not, they will have no one to blame
but themselves. Restrictive standing rules came from the conservative
legal movement. But progressives should not necessarily oppose House
intervention: The constitutional argument against the debt ceiling is
strong, and progressives should not be in the business of kicking
litigants out of court.

Assuming, however, that both the district and circuit courts follow the
constitutional text and history and strike down the debt ceiling,
wouldn't the Supreme Court simply do the Republican Party's bidding
and overturn the other courts? They might. But they might also be
reluctant to destroy the full faith and credit of the United States. The
GOP's billionaire contributors do not want a market meltdown. Neither
does Harlan Crow
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If the Supreme Court does overrule the lower courts, it will be clear
for all to see who is responsible for the ensuing catastrophe. The House
GOP's entire strategy has been to crash the economy while avoiding
blame. A nakedly partisan Supreme Court judgment would block that path.

No legal strategy is foolproof, and litigation cannot solve the basic
problem of a lawless Republican Party bent on destruction. But given the
House GOP's eagerness to take the world economy hostage, the best tack
here is simple: take away the terrorist's gun.

**Jonathan Zasloff is professor of law at the UCLA School of Law.**

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