Friday, October 11, 2013

Debt Limit Extraordinary Measures Should Be Repealed.

The House is proposing to eliminate the "extraordinary measures" that delay hitting the debt ceiling. Some people think this is a bad idea or a poison pill but it is not. These special procedures started out as a method to give the Treasury flexibility but have turned into something completely different. They have essentially allowed the Republicans to force a delay in when we hit the debt limit by essentially requiring the Treasury to take money from the civil service retirement fund the federal employees 401(k) plan and other sources. In doing so all they have done is delay the inevitable. Moreover, they have added uncertainty to the process, something that increases the danger that the debt limit will be crossed.

Here is the type of announcement the Treasury uses to invoke the special measures:

Today, the United States has reached the statutory debt limit. Secretary Geithner sent the following letter to Congress this morning alerting them to actions that have be taken to create additional headroom under the debt limit so that Treasury can continue funding obligations made by Congresses past and present. The Secretary declared a "debt issuance suspension period" for the Civil Service Retirement and Disability Fund, permitting Treasury to redeem a portion of existing Treasury securities held by that fund as investments and suspend issuance of new Treasury securities to that fund as investments. He also suspended the daily reinvestment of Treasury securities held as investments by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan. For more information on these measures, please read this FAQ.

These are but two of the several measures the Treasury uses to delay the day of reckoning. Treasury takes civil-service retirement contributions and instead of investing them in securities, uses them to pay other obligations. It also takes money contributed by federal employees to their 401(k) and instead of investing it, uses that money to pay off other obligations.

It should be noted that this is not what happens with Social Security and other trust funds. This is something totally different and pernicious and it only affects Federal employee money and some other things like the issuance of State and Local Government Series Treasury Securities.

Under normal circumstances all trust fund accounts, whether Social Security, Medicare, Highway Trust Fund, Civil Service Retirement Fund, et al., are invested in special issue Treasury instruments and are part of the national debt. They are under the heading of Debt Not Held By The Public.

But there is a law that applies to Civil Service Retirement Trust funds that allows Treasury to cancel the instruments in the CSRS fund when it reaches the debt ceiling. Once those instruments are cancelled, the national debt is reduced by that amount and the money can be spent for expenses, like Boehner's salary. The law requires the money to eventually be paid back, but for now the instruments are gone. This debt cancellation cannot be done with the Social Security or most other trust funds.

The Thrift Savings Plan (TSP) funds can also be raided under these procedures. The TSP is a 401k administered by a separate board. Federal employees have many choices of where to invest their funds including, stocks, bonds, real estate and Government Securities. This law applies only to money in the G Fund and it allows Treasury to cancel those government securities and spend the money. Also new money designated for the G Fund can be directly spent. Again, the law says it must be redeposited later, but right now the debt is cancelled, and that is why it doesn't it isn't part of the national debt.

Congress should eliminate the authority for these special measures. What started out as something to be used rarely and only in extraordinary circumstances has now been used every time we reach the debt limit and has merely delayed when the final day of reckoning arrives. These extraordinary measures hurt the process by adding uncertainty and confusion and creating the impression the Treasury has some magical tricks that can prevent debt limit catastrophe. And once again it is federal employees who are the victims of Congress' incompetence.

Tuesday, October 08, 2013

The President Restates That There Are No 14th Amendment Tricks Around The Debt Ceiling

At todays press conference the President restated what he said in January that there are no tricks around the debt ceiling, such as the 14th Amendment, gigantic coins or script.

And I know there's been some discussion, for example, about my powers under the 14th Amendment to go ahead and ignore the debt ceiling law. Setting aside the legal analysis, what matters is -- is that if you start having a situation in which there -- there's legal controversy about the U.S. Treasury's authority to issue debt, the damage will have been done even if that were constitutional, because people wouldn't be sure. It'd be tied up in litigation for a long time. That's going to make people nervous.

So -- so a lot of the strategies that people have talked about -- well, the president can roll out a big coin and -- or, you know, he can -- he can resort to some other constitutional measure -- what people ignore is that ultimately what matters is, what do the people who are buying Treasury bills think? And again, I'll -- I'll just boil it down in very personal terms.

If you're buying a house, and you're not sure whether the seller has title to the house, you're going to be pretty nervous about buying it. And at minimum, you'd want a much cheaper price to buy that house because you wouldn't be sure whether or not you're going to own it at the end. Most of us would just walk away because no matter how much we like the house, we'd say to ourselves the last thing I want is to find out after I've bought it that I don't actually own it.

Well, the same thing is true if I'm buying Treasury bills from the U.S. government, and here I am sitting here -- you know, what if there's a Supreme Court case deciding that these aren't valid, that these aren't, you know, valid legal instruments obligating the U.S. government to pay me? I'm going to be stressed, which means I may not purchase. And if I do purchase them, I'm going to ask for a big premium.

So there are no magic bullets here. There's one simple way of doing it, and that is Congress going in and voting.
And the fact that right now there are votes, I believe, to go ahead and take this drama off the table should at least be tested. Speaker Boehner keeps on saying he doesn't have the votes for it, and what I've said is, put it on the floor. See what happens. And at minimum, let every member of Congress be on record. Let them -- let them vote to keep the government open or not, and they can determine where they stand and defend that vote to their constituencies. And let them vote on whether or not America should pay its bills or not. And if, in fact, some of these folks really believe that it's not that big of a deal, they can vote no.

And that'll be useful information to -- for voters to have. And if it fails and we do end up defaulting, I think voters should know exactly who voted not to pay our bills, so that they can be responsible for the consequences that come with it.

These positions are not new. In a January 14, 2013 press conference he said "There are no magic tricks here, there are no loopholes." This reiterated what the President, through the Treasury, stated a few days earlier that he will not use the platinum coin option. Both statements echoed his decision in 2011 that he would not use the 14th Amendment option.

All of all these issues are discussed in this post and here is a summary.

It has been argued the President could use the authority to mint a platinum coin in a trillion dollar denomination and use those funds to continue to pay the Treasury's bills. The second alternative was to use his authority to issue scrip that would be used to pay the debts of United States until the debt limit that could be raised and real dollars borrowed. The third option was for the President to simply say that he has the authority under the 14th Amendment, or some other constitution provision, to issue debt notwithstanding the fact that the issuance would exceed the amount of the debt limit law.

The President will not choose the first two options because, whether or not one thinks he has the legal authority to issue a platinum coin or issue scrip, the President knows that both internationally and domestically taking either of those actions would be viewed as a gimmick, a magic trick. They would at the least raise significant legal issues that would call into question the validity of any debt that is issued. Also, either of those actions would merely be kicking the can down the road. They would be giving the Congress an excuse to not raise the debt limit because the President would have continued to keep the country operating and the Republicans would have been let lose to fight the President in the courts and through impeachment hearings.

The third option was for the President to assert that the 14th Amendment gives him the authority, if not a requirement, to avoid default notwithstanding the debt limit. But this assertion would not only raise the legal and practical issues of the first two, but also create a significant Constitutional crisis, a crisis between the President and the Congress as well as between the President and the Supreme Court.

Asserting this position is not the same as a conflict between two statutes, where the President interprets one statute as overriding another. Many people have suggested this possibility by arguing that the Congress has passed Appropriations Acts and that they require the President to spend the money appropriated, a requirement which conflicts with the debt limit law. That argument has little merit. There is no statute that says money that is appropriated must be spent if there is no money available. In fact, if you look at every Appropriations Act the lead off language is ,
"That the following sums are appropriated, out of any money in the Treasury not otherwise appropriated, . . . . . "

"Any money in the Treasury." Very soon if Treasury cannot borrow money and put it in the Treasury, there will only be two dollars in the Treasury for every three dollars of bills coming due. Appropriations acts simply do not authorize let alone require the expenditure of funds that the Treasury does not have. There is no conflict between Appropriations Laws and the Debt Limit law. One tells Treasury how to spend money in the Treasury, the other limits how much can be borrowed to put money in the Treasury. This question is totally different than the question of whether the President can refuse to spend appropriated funds when such funds are available, which the Supreme Court has ruled to be unconstitutional.

Simply put we are talking about the President asserting the power to unilaterally decide whether he will comply with laws that are duly enacted by Congress and signed by the President. Except for Nixon no President has done that, in this way, since Lincoln suspended the Habeas Corpus provisions of the Judiciary Act of 1789. The action was challenged by a prisoner but Lincoln ignored a court decision which ruled the action Unconstitutional. Eventually, however, Congress essentially ratified his action.

The President would be effectively declaring the debt limit built to be unconstitutional because it conflicted with his 14th amendment powers. He would be declaring unconstitutional a law that was passed many decades ago and has been amended scores of times since then. A law which during all that time no President has ever declared to be unconstitutional or in any way inconsistent with the President's powers under the 14th amendment.

The President has made clear that he will not take these actions. He knows they do not solve the underlying problem and run the risk of chaos over an extended period of time in the international financial markets and damage to the standing of the United States that may take a long time to fix. And it goes without saying that the political chaos this would create domestically would ruin any chance of his being able to achieve anything in his second term.