A Prospect newsletter about the debt limit
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The Judicial Deus Ex Machina Debt Ceiling Option

On today's X-Date, liberals look to the courts to solve their
intractable political problem. That spells trouble.

 

 

Graeme Sloan/Sipa USA via AP Images

By David Dayen

**** Twenty-three years ago, Boston Celtics coach Rick
Pitino admonished fans <[link removed]> of his young,
struggling team by telling them they were living a fantasy. "Larry
Bird's not walking through that door, fans. Kevin McHale's not
walking through that door and Robert Parish is not walking through that
door ... And as soon as they realize that those three guys are not
coming through that door, the better this town will be for all of us."

You can imagine Janet Yellen saying something broadly similar regarding
the debt ceiling at this point. The trillion-dollar coin isn't walking
through that door. The 14th Amendment isn't walking through that door.
Premium bonds are not walking through that door. She did it again
Thursday at a meeting of G7 finance ministers in Japan. "There would
clearly be litigation around" invoking the 14th Amendment's public
debt clause, Yellen said. "It's not a short-run solution ... it's
legally questionable whether or not that's a viable strategy."

As I have said, the White House strategy on executive action to solve
the debt ceiling crisis has been to dismiss without rejecting
<[link removed]>.
But with Yellen, the most cautious of Biden's advisers, it's hard to
tell whether she's making much of a distinction between the two. And
the above statement is no different than what Joe Biden said
<[link removed]>
on Tuesday: Invoking the 14th would trigger a lawsuit, and by the time
it was all figured out, America will have hit the X-date and defaulted
on its debt for the first time in history, so it's a no-go.

Biden held out this idea of using the 14th later to get a legal ruling
on the constitutionality of the debt limit, which has hitherto been
tricky. Without a crisis point, it's hard to see who would have
standing to sue, including the executive. But that crisis point is here
right now. Holders of existing Treasury bonds fear not being paid in a
timely manner. If they tried to sell their bonds today, they would have
to sell at a premium, as evidenced by the Treasury spreads going nuts
<[link removed]>
as markets price in the risk of default. That is a real financial loss
in market value, as a result of congressional inaction.

That's why a bondholder would be an ideal plaintiff to sue Janet
Yellen
<[link removed]>
for refusing to pay legally obligated debt, in violation of the 14th
Amendment clause that "the validity of the public debt ... shall not be
questioned." So far, a litigant in that predicament has not stepped
forward, but the National Association of Government Employees (NAGE) has
<[link removed]>.
If they succeed, the waiting game that Yellen and Biden have said
precludes them from taking unilateral action would be turned on its
head; the courts will have issued a ruling that the government must
repay these previously incurred debts.

**Read all of our debt ceiling coverage here**
<[link removed]>

Click to Support The American Prospect <[link removed]>

It's rather incredible for unions and liberals to be counting on the
conservative judiciary to bail the Democratic president out of a
hostage-taking event from House Republicans. But if the case advances
through Massachusetts district judge Richard G. Stearns-a Clinton
appointee-to whom it has been filed, and to the Supreme Court, John
Roberts and his colleagues would have to decide whether they want to be
the sole reason that America enters financial collapse. In terms of
political tactics, this seems smart enough-it would be a difficult
position
<[link removed]>
for them to take.

But is the current NAGE case, the only one on the docket at the moment,
the right vehicle for this effort? Let's read the complaint
<[link removed]>,
which is only 11 pages. The plaintiffs actually don't merely invoke
the 14th Amendment, but rather offer a number of constitutional grounds
for the courts to latch onto in ruling the 1917 debt ceiling statute
unconstitutional.

NAGE, which represents 75,000 federal employees in various government
agencies, has experienced work disruption before in association with
government shutdowns; reaching the borrowing limit is different from
those but would likely have the same effect of triggering furloughs or
layoffs. In fact, the "extraordinary measures" that Yellen (like other
Treasury secretaries before her) has taken to delay the X-date represent
an existing harm to NAGE members; she stopped reinvesting in member
retirement and health benefit funds and suspended new investments in
other benefit funds. That's the existing harm that can trigger
standing to sue, in addition to the fact that, under current law, NAGE
members could very well lose their jobs and see their benefits harmed.

The complaint states that, should the borrowing limit be reached, the
executive branch will have a conundrum. "Under Article II of the
Constitution, the President is obligated to execute all the laws,
without exception," it reads, "and may not be placed by Congress in a
position where the President has to determine what laws are of
continuing force and require payment." The debt ceiling statute creates
this problem, since it forces the president to either violate the 14th
Amendment (which guarantees payment to debtholders) or violate the laws
requiring implementation of programs that will no longer get
appropriations.

So while the case is broadly similar to the "invoke the 14th" arguments
many have made, it's framed in a conservative way, saying that the
statute forces the executive branch to make decisions about spending
that are exclusively reserved for Congress. It's a separation of
powers problem, in other words, a charge of excessive executive power.
Ruling the debt ceiling statute unconstitutional solves this problem, by
freeing the executive of the need to choose which laws to violate.

It even gives Congress the option of changing the debt ceiling statute
to say particularly what they would delegate to the executive regarding
prioritization of payments. (That's been proposed by Republicans but
is unlikely to ever pass.) Congress has done this in the case of the
Antideficiency Act by allowing the executive temporary authority to
spend on essential services while a budget is being worked out. There is
no such option with the debt ceiling; therefore it violates the
Constitution.

[link removed]

As a final measure, the lawsuit cites the Fifth Amendment protection of
due process (as well as another clause of the 14th, the equal protection
clause) to say that Congress hasn't set forth rules on who will and
who won't lose money in the event of a debt ceiling breach, and
therefore the statute is unconstitutional on those grounds.

So that's all well and good. The question, of course, is whether it
will work. One possible problem was brought up by Tommy Bennett, a law
professor at the University of Missouri. He notes
<[link removed]> that the
executive has the option of minting the trillion-dollar coin to cover
obligations, or issuing premium bonds known as consol bonds, with no
principal amount and no maturity date but high interest payments, to
take in much more in borrowing than the face value. (See explanations of
both, here
<[link removed]>
and here
<[link removed]>.)
Because these options are available, it gives the executive a way out of
the lose-lose choice of violating one law or the other. And if that is
available, then you can't say the debt ceiling statute forces the
executive to break the law.

"If I were advising the Biden administration, I would urge them to
exhaust all non-constitutional options," Bennett wrote. "Otherwise, they
will be susceptible to the criticism that the dilemma between the debt
ceiling and the payment of non-discretionary spending is an illusory
one."

That's a pretty big problem for the plaintiffs. And it's unclear
whether the executive branch is willing to assist them by reaching for
these solutions. It's possible that prior Office of Legal Counsel
opinions on the coin, which do exist
<[link removed]>, could
be used as evidence in the case-in particular, if they state that the
president cannot use the coin, that would help the NAGE case. But consol
bonds seem pretty legal, and available as an option.

That's bad for the case, though it's not clear Judge Stearns will
see it that way. He may ignore the other statutes and rule with the
plaintiffs, sending it eventually to the Supreme Court. And given the
exigency of the case, he may do it quickly. Then it gets thrown into the
Supremes' lap, where it really becomes a political matter.

But if Judge Stearns rejects the case, that throws the decision right
back in Janet Yellen's lap. If negotiations between Biden and Congress
yield nothing-which you have to see as a distinct possibility at this
point-Yellen has to make a decision on how to proceed. She has options
that, though she clearly finds them distasteful and unreasonably
expensive, appear perfectly legal. A favorable court ruling might not be
walking through that door.

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