The Broader Market

Bruce Bartlett, a former senior economic official in the George H.W. Bush administration, is the newest person to argue that the 14th amendment makes the debt limit unconstitutional.

It is interesting to note that even Treasury Secretary Tim Geithner has suggested that failure to pay our debt obligations is unconstitutional. As a political device, publicly floating the idea that the debt limit unconstitutional is brilliant. It gives a significant amount of leverage to Democrats in the debt limit negotiations at a time in which Republicans don’t seem to believe that catastrophe will occur if we don’t raise the debt limit. And the longer the idea is out there, the less of a surprise it is to bond markets.

by Jordan Eizenga

Some commentators have argued that the 14^th Amendment of the US Constitution makes the debt ceiling unconstitutional. Section Four of the 14^th Amendment states that:

the validity of the public debt of the United States, authorized by law, including debt incurrent for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

Constitutional scholars, such as Garrett Epps (the gentleman in the video), interpret this to mean that that it is unconstitutional for the federal government to renege or default on its financial obligations. According to Epps, the President could simply claim that the debt ceiling is unconstitutional and order the Treasury Secretary to issue more debt in order to pay its obligations. Yet, even if there is a legal argument for overriding the debt limit, the political argument for doing so is complicated. It is far from clear that the public would either comprehend or agree with the President’s interpretation of the Constitution. But, it is equally unclear if the public would side with obstinate Republicans who seemed willing to allow the federal government to default on its obligations.

Tom Doe of Municipal Market Advisors (and a friend of this blogger) talks to Fox Business News about the possibility that municipal bonds could lose their tax exempt status. Many deficit hawks have been calling for the repeal of the tax exemption on munis, as it results in foregone tax revenue to the US Treasury. In this segment, Doe rightly asserts that people should be concerned about munis losing their tax exempt status.