Among the proposed solutions to avoid the default of the United States on its debt in the event of failure to reach an agreement to raise the debt ceiling, resorts to Article 14 of the US Constitution.
While raising the debt ceiling is essentially a routine process, it has become a bone of contention in recent years with Republican lawmakers seeking spending cuts in exchange for a higher ceiling.
Article 14, which was added to the US Constitution in 1868 after the War of Secession, provides that “the soundness of the public debt of the United States, authorized by law, cannot be in doubt.” voting must be respected, including pensions, according to What, Agence France Presse reports.
Robert Hackett, professor of law at Cornell University, explained that after the Civil War, “fear grew in the victorious northern states that southern legislators returning to Congress would continue to destroy our federal unity, but from within, by abandoning the federal debt, from the war,” as reported by the AFP agency.
The debt ceiling was added to this text in 1917.
Can Biden use it?
Mark Graber, a professor at the University of Maryland School of Law, stressed that Biden, in implying that he could invoke the provision, “was keen to say that if Congress didn’t approve the debt ceiling increase, it could pay off anyway.” because it is his constitutional duty.”
Joe Biden does not need certain measures. Robert Hockett has made it clear that he should “ask Treasury Secretary Janet Yellen to just continue issuing this debt if necessary to pay the country’s bills” or he could act as if the debt ceiling didn’t even exist.
However, the president has so far ruled out resorting to this mechanism in the short term due to legal complications, preferring to think about it during the current crisis.
On Thursday, Janet Yellen, during a press conference on the sidelines of the G-7 meeting in Japan, questioned the appropriateness of applying Article 14.
And she considered the strategy “legally up for debate,” stressing that she doesn’t want to get to the point where alternatives to raising the debt ceiling are being considered.
Possible difficulties
The possibility of the Republican opposition turning to the judiciary may be a major barrier to the passage of this mechanism, but Robert Hockett does not expect the Republicans to go for it, believing that it will put them “in a very uncomfortable position, as they will initiate prosecutions for forcing the president to announce default on the public debt.
On the other hand, Mark Gruber saw the opposite, explaining that “Republicans will go on the counterattack and say that Joe Biden doesn’t understand what Article 14 is about debt only, and that he can’t pay off the accumulated debt in the first place without bringing in a new one” . Expenses.”
Either way, there are risks, according to University of Florida law professor Neil Buchanan.
Exceeding the level of leverage set by Congress would be against the law, but failure to meet Congressional spending obligations could be a more serious violation. In this particular case, prosecutions are also possible in the form of a collective appeal of pensioners who have ceased to receive a pension.
economic consequences
In essence, markets are very hostile to uncertainty and may not be particularly accepting of the uncertainty that may result from this situation.
“If investors see that the debt sold by the Treasury may later be invalidated by a court order, they may be hesitant to buy it,” said Nancy Vanden Houten, an economist at Oxford Economics, and this could lead to “a significant increase in interest rates.”
Isaac Boltansky, director of policy research at BTIG, said the case was risky, explaining that the court’s confirmation of the debt’s validity “would be positive in the long run for the debt markets” as stopping regular debt ceiling increases “could completely avoid this completely useless maneuver.” .
On the other hand, “if the courts reject this maneuver, we will be back to square one, but with more economic damage.”
Houghton said the measure “could undermine investor and company confidence and have a negative impact on the economy,” but the consequences “would be much more detrimental” if the Treasury did not pay back on time.
