2023-05-12 13:34:08
Democrats and Republicans fail to agree on raising the US debt ceiling, an essential legislative maneuver so that the world’s largest economy can continue to pay its bills, its officials and its creditors.
Joe Biden, May 8, 2023, in Washington (AFP / BRENDAN SMIALOWSKI)
Among the solutions put forward to save the United States from default, without an agreement to raise the debt ceiling, is the use of the 14th Amendment to the Constitution.
US President Joe Biden and Republican House of Representatives boss Kevin McCarthy, who spoke on Wednesday, are due to meet again “early next week”.
What is the 14th Amendment?
The 14th Amendment, added in 1868 to the American Constitution, after the Civil War, stipulates that “the validity of the public debt of the United States, authorized by law, (…) must not be questioned” . In other words, the expenses already voted must be able to be honoured.
At the end of the civil war, in fact, “concerns grew (within the northern states, victors, editor’s note) that the southern legislators readmitted to Congress would continue to destroy our federal union, but from within, by repudiating the federal debt caused by the war,” Robert Hockett, a law professor at Cornell University, told AFP.
The debt ceiling then came, in 1917, to superimpose itself on this text.
Can Joe Biden use it?
Hinting that he might have recourse to it, “what Biden is saying is that if Congress doesn’t vote to raise the debt ceiling, he can pay the bonds anyway because it’s his constitutional duty. “said Mark Graber, professor at the University of Maryland School of Law.
No particular procedure, Joe Biden must “ask Treasury Secretary Janet Yellen to simply continue to issue this debt if necessary to pay the bills of the nation”, indicates Robert Hockett.
And therefore act as if the debt ceiling did not exist.
But at this stage, the president has ruled out resorting to it in the short term, due to legal complications, planning instead to let the crisis pass to think about it.
What difficulties is he likely to encounter?
The main obstacle would be a legal action brought by the Republican opposition.
Professor Robert Hockett thinks they won’t. It would put them “in a very uncomfortable position because they would be suing to force the president to default on the national debt,” he said.
For Mark Gruber on the contrary, no doubt, “the Republicans will counterattack by saying (that Joe Biden) does not understand the 14th amendment which refers to the debt only, and that he therefore cannot repay the debt (already accumulated ) without incurring new expenses”, assures Mark Graber.
In both cases, the risks exist, underlines Neil Buchanan, professor of law at the University of Florida.
Borrowing beyond the debt limit set by Congress would be against the law.
But failing to meet Congressional spending obligations could be an even more serious violation. And in this case, the risks of prosecution also exist, such as a collective action by retirees who would no longer receive their checks, he underlines.
What economic consequences?
The markets hate uncertainty, and would doubtless enjoy little of the uncertainty that would result from this situation.
“If investors anticipate that debt sold by the Treasury may later be deemed invalid due to a court ruling, they may be reluctant to buy” and that “could drive up interest rates.” ‘interest,’ says Nancy Vanden Houten, economist for Oxford Economics.
It’s a gamble. Indeed, a confirmation, by the court, of the legality of the decision, “would prove positive in the long term for the debt markets”, underlines Isaac Boltansky, director of policy research for BTIG. Because, then, finished having to regularly raise the debt ceiling, “this totally useless dance could be completely avoided”.
On the other hand, “if the maneuver were rejected by the courts, we would be back to square one, but with a considerable amount of (…) economic damage”.
The measure thus risks “shaking the confidence of investors and businesses and having a negative impact on the economy”, admits Nancy Vanden Houten. But the effect would be much “more damaging (…) beyond a few days”, if the Treasury does not pay all its obligations on time.
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