US Government Debt Different - Finance Department - University of ...

Michael W. McConnellvene? Who would have standing? The answer is that the bond marketsare the check. Any loan to the government based solely on thePresident’s say-so would not be backed by the full faith and credit ofthe United States. Indeed, in all likelihood, Treasury funds could notbe used to repay any such illegal loans. It is doubtful that such bondswould sell, and if they did, bond traders would demand a significantrisk premium to compensate for the lack of legal guarantee of payment.President Obama would find himself like Charles II, payingexorbitant rates of interest for loans not backed by the nation.49The general theme of the United States fiscal constitution is thuseasily summarized: The President is powerless to tax, to spend, orto borrow without advance congressional authorization. Dreams ofexecutive unilateralism are just that. Some may regard Congress’snegotiating strategy as reckless, and others may regard it as a necessarymeans of procuring some measure of spending discipline froman unwilling executive, but either way Congress is acting within itsconstitutional authority. The President has no choice but to workwith Congress on the political playing field established by the Constitution.DefaultIs default a constitutional option? Under the original Constitution,the answer is yes. Delegates at the Constitutional Conventiondebated proposals that would have effectively outlawed default onthe public debt, but they were rejected – in favor of a provision,Article VI, which makes the pre-existing debt “as valid against theUnited States under the Constitution, as under the Confederation.”Any wiggle room the United States had to default, it continued tohave.Some say that the Fourteenth Amendment changes all of this. SectionFour of the Amendment states: “The validity of the public debtof the United States, authorized by law, including debts incurred forpayment of pensions and bounties for services in suppressing insurrectionor rebellion, shall not be questioned.” This was designed toprevent a southern Democratic majority from repudiating the Civil