After all, President Obama consented at the G-20 Summit in Toronto in 2010 to put the American people on the same type of austerity program suffered by the Chilean people under General Augusto Pinochet, numerous other third world countries, and now by the Western European nation states. The G-20 Summit Declaration from the Toronto meeting reads, in pertinent part, "The advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016." So, before the show ever started, we already had a mandate to cut our deficit in half by 2013. Nothing "elected" can accomplish that feat. There must be a second act.
The Toronto Declaration is also remarkable in its repeated emphasis for the need of the international banking system to reduce "moral hazard," which is odd for a group of countries, banks, and NGO's that all espouse a commitment to world capitalism and free trade. "Moral hazard" means that an economic actor must suffer the consequences of its poor decision making in the market, and when it is relieved of that hazard it tends to make economic decisions that benefit neither its shareholders nor its customers, nor society at large. It was the very absence of moral hazard that led to the crash of 2008 and the 16.5 trillion dollar bank and insurance bailout which the American taxpayer will eventually be asked to bear, either through inflation or repayment. To the purest capitalist, such as libertarians, moral hazard is exactly what makes capitalism work.
Since it is evident that the "Super Congress" created in the bill to raise the debt ceiling will never agree to anything, the automatic cuts will apply, resulting in the most massive social spending cuts in world history and beginning the process of meeting the G-20 requirements. Now that the debt limit has been successfully used as hostage by a minority of Congressional members to enforce their mythical opinions into law (at least that is the appearance), the precedent has been set to disrupt our economy every time a new debt limit or a new budget must be passed. The Democrats, the President, and the mainstream media would have us believe that nothing can be done to thwart the insanity of those House members willing to crash the global economy if they do not achieve their spending cuts without an increase in revenues. However, this is simply a lie.
First, and most important, is the Fourteenth Amendment option. To completely understand that option we must examine why it exists and why its use by the President might be less than highly controversial. Put simply, no matter what his reaction to Congressional failure to raise the debt limit, the constitutionality of his response would still be an issue.
The media kept us believing that if the debt ceiling was not raised the President could pick and choose those checks which the Treasury would cut. However, the Supreme Court implied in Clinton v. New York, 524 U.S. 417 (1998), that the President may not favor one creditor over another so that in the event the debt ceiling bill failed, the President lacked the power to direct the spending of any funds at all. The result of Congressional failure, therefore, meant immediate and total default, notwithstanding the assurances of the Tea Party and the networks.
Although the Court in Clinton dealt with the constitutionality of the line-item veto, the rationale supporting the decision is equally applicable to choosing to pay only certain debts. While Obama could attempt to pay some federal debt, he undoubtedly would have drawn a constitutional challenge and a temporary or permanent injunction. On the other hand, if he failed to use available funds to at least pay some outstanding debts, he was equally as sure to receive a constitutional challenge. Neither option was any more "nuclear" than merely using the plain language of the Fourteenth Amendment.
Section 4 of the Fourteenth Amendment to the United States Constitution has been referenced as the nuclear option for the President if the debt ceiling bill failed in the Congress. A more accurate metaphor than the nuclear option would be the antique rifled musket used in the American Civil War. But as usual, the media presented this option in an overly dramatic manner, since Section 4 was designed exactly for the type of situation President Obama faced. The real question was whether he had the courage or will to use it. Section 4 reads:
"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void."
In its totality, the Fourteenth Amendment deals with the conditions for U.S. citizenship, state infringement on the rights of citizens of the United States, the right to the due process of law for all U.S. citizens, and the right of all U.S. citizens to equal protection under the law. It was passed as a direct result of the Civil War. Section 4 was included because the Northern states feared that the defeated Southern states might at some point obtain a majority in one of the two houses of Congress and then refuse to pay the debts incurred by the previous Congresses that authorized expenditures during the war against the South.
Section 4 explicitly contemplates a future Congress which refuses to honor the debts authorized by a past Congress, the exact situation which faced President Obama. A clearer case of original intent cannot be imagined. Moreover, logic dictates that the constitution must contain exactly some such provision. It might even be said that when Congress passes a budget bill, it implicitly binds the future Congress to raise the debt ceiling by unanimous vote, given the fact the Executive has no discretion over whether to implement the budget, short of a veto of the entire budget, which risks a government shut down. Otherwise, any new Congress could take power and refuse to honor the debt of previous legislators, and the United States would be the poorest credit risk of all of the industrialized nations -- perhaps, of all of the nations on earth not engaged in civil war.
Whether the President paid only certain creditors, no creditors, or whether he used the Fourteenth Amendment to raise the debt ceiling, he faced a constitutional challenge. The clearly preferable option was to face a challenge where he paid all debts incurred by previous budgets, not only for the country, but for his own standing as a leader. In fact, the Republican's little rebellion against paying the bill for previously passed budgets could well have been considered under the terms of the Fourteenth Amendment a reason to cut off their salaries, staffs, and any other monies received in their rebellion against a clear legal duty to the country. One cannot hold the nation hostage and get paid for it under the Fourteenth Amendment, unless President Obama is in power.
Thus, he should have put the Fourteenth Amendment on the table rather than taking it off, but that presumes he had not already agreed to impose austerity measures upon the American working class. He also should have made clear that he was powerless under Clinton to pick and choose which creditors he could pay, but again we face the same presumption. The only rational answer for his weakness when he held strong legal positions is that he got exactly the outcome he wanted, in accord with the agreement reached in Toronto.
One other strategy existed for Obama to avoid the standoff in the final hours altogether. Knowing the debt ceiling battle was coming, the administration could have started cutting federal spending months in advance, giving both the Republicans and Americans a taste of the snake oil the Tea Party was selling. Obama could have closed the national parks; furloughed such federal employees as meat inspectors, accompanied with cautions that American meat is no longer inspected for such maladies as mad cow disease; closed nuclear plants since the federal government could not afford inspections, reduced the federal work week to four days, stopped issuing offshore oil drilling permits for lack of inspectors, shut down the FAA for two days a week, eliminating air travel for those days, stopped all federal construction projects, etc., saving the funds necessary to run the federal government for up to six weeks in the event the debt ceiling bill failed to pass the House.
Placing blame squarely upon the Republican threats to hold the debt ceiling hostage, Obama could justify these cuts as necessary precautions against an adversary completely unwilling to compromise and quite willing to crash the world economy. Such cuts would have forced the issue well before the August 2 deadline as Americans lit up the Congressional and Executive telephone lines and INTERNET sites. Yet, once more, not only would such a course take courage, it might also work. Then, Obama might violate the agreement reached at the 2010 G-20 Toronto Summit.
Most significant of all, as an attorney, and a constitutional scholar at that, President Obama understands that his actions in this very first effort to use the debt ceiling bill as leverage to obtain partisan gains established precedent for the future. Why then, it must be asked, when he held such a magnificent arsenal to counter attack, did he leave his arrows in the quiver? Only one logical answer suffices. President Obama did, in fact, agree to impose IMF austerity measures upon the American people, and the Speaker of the House told the complete truth when he said that the President would not put a plan on the table because behind closed doors the Chief Executive was negotiating the evisceration of Social Security, Medicare, and Medicaid. Moreover, by giving in to the Republicans holding hostage the national and world economies, the President indicated that future such tactics will lead to future such successes and ultimately to the loss of America's social safety net.