But internally, advisers view the options as risky choices that could cause lasting economic damage, the people said, speaking on condition of anonymity to discuss private conversations. White House aides are reluctant to withdraw the proposals entirely. If the federal government actually cannot borrow more, the United States may be in uncharted territory with no clear way to avoid disaster, which would make extreme measures more attractive. But administration officials are adamant that Congress must act to raise the debt limit, believing it is the only sure way to avoid financial turmoil.
Mint the coin? A bond buyback? 7 “tricks” to avoid the debt limit.
After the debt ceiling battles that began during the Obama administration, some legal experts have argued that the White House could ignore Congress and simply declare the borrowing limit inconsistent with the 14th Amendment, which states “the validity of the public debt , authorized by law … should not be questioned.” Under this theory, the Treasury could continue to borrow money above the limit, issuing federal debt to keep government operations funded. The administration will argue that Congress approved two conflicting laws — the debt ceiling and later measures that require spending above the limit.
Other unilateral proposals studied internally but taken less seriously include issuing bonds that never mature and thus technically do not count against the borrowing limit, or minting a $1 trillion platinum coin to be deposited in the Fed reserve.
But administration officials believe such actions could backfire dangerously.
Any option to act without Congress is likely to be subject to immediate legal challenge by Republicans as an executive overreach. No matter what the merits of the debate, Biden officials fear that investors will demand much higher interest rates to buy government debt that the courts could reject because repayment prospects will be unclear. That could cause a spike in federal borrowing costs, as well as raise interest rates on other loans, and could still lead to the same broader panic in financial markets it’s trying to avoid, administration officials fear.
“You have to worry about interest rates, the market reaction, the effect on financial markets that rely on government bonds. There’s no way we can avoid potentially significant economic damage given the debate that’s going to follow,” said David Kamin, who was deputy director of the White House National Economic Council earlier in the Biden administration.
Kamin, who has been involved in the administration’s internal discussions about the debt limit during the 2021 showdown, said he thinks the White House will have a strong case that the borrowing limit is unconstitutional — but the deciding factor is what investors believe that the courts can do .
“The only option where there is clarity and you can confidently avoid economic damage is for Congress to act as they have done in the past,” said Kamin, who emphasized that he was only representing his own views.
Biden aides want to force the GOP to back down on threats to limit the debt
The White House’s skepticism of unilateral action only raises the stakes in Tuesday’s meeting between Biden and congressional leaders, including House Speaker Kevin McCarthy (R-Calif.), whose support will be needed to raise the limit.
Administration officials have largely declined to comment on their internal assessments of unilaterally lifting the debt limit.
President Biden, asked about the 14th Amendment by MSNBC on Friday, said, “I haven’t gotten there yet.”
Treasury Secretary Janet L. Yellen reiterated Sunday that there would be no “good options” short of congressional action. Yellen has called on Congress to eliminate the debt limit entirely, but she sounded skeptical about the merits of invoking the 14th Amendment in an interview with ABC News.
Treasury Secretary Yellen says the debt ceiling must be removed for good
“There is no way to protect our financial system and our economy except for Congress to do its job and raise the debt ceiling and allow us to pay our bills,” Yellen said. “We don’t have to get to the point where we have to consider whether the president can continue to issue debt.” That would be a constitutional crisis.
Asked again, Yellen said: “It’s the job of Congress to do that. If they fail to do so, we will have an economic and financial disaster that will be our own fault, and there is nothing President Biden and the US Treasury can do to prevent this disaster.
White House Press Secretary Karine Jean-Pierre also told reporters last week: “We will not entertain scenarios where Congress completely compromises the full faith and trust of the United States.”
Some scholars and advocates say the administration should try anyway.
Bob Hockett, a Cornell law professor who specializes in finance, said he was confident that at least six Supreme Court justices — and possibly as many as nine — would support the administration rather than trigger a potential global economic shock. The court could move in less than a week, he added, meaning the uncertainty for bondholders would be short-lived.
Hockett said the risks of unilateral action on the debt ceiling were smaller than the damage that would come from agreeing to Republican proposals for drastic spending cuts.
“I don’t think the Supreme Court is ready to cause a global financial catastrophe by ruling in favor of Republicans in Congress,” Hockett said. “I think the Supreme Court is going to expedite a review of this very quickly, and for that reason I don’t think we’re going to see terrible turmoil in the markets.” I think we’re going to have more turmoil if we have to wait to see if McCarthy and Biden come to an agreement.”
Lawrence Tribe, a Harvard law professor and prominent constitutional scholar, wrote an op-ed in the New York Times on Sunday arguing for a new way to invoke the 14th Amendment to escape the debt-limit impasse. Tribe said Biden should argue that Congress has no right to tell the president to ignore the spending laws he approved in the first place, ignoring one law to comply with another.
“I have no doubt that the rate premium will be high, but it’s McCarthy’s mistake that he’s trying to hold the nation hostage until we get right to the cliff — or fall over it,” Tribe told The Washington Post in a separate interview.
Peter R. Orzag, who served as director of the Office of Management and Budget under President Barack Obama and is now chief executive of financial consulting at Lazard, also acknowledged potentially significant “economic and financial” harm from invoking the 14th Amendment, but said administration officials should review all contingency plans.
Orzag stressed that the administration should not agree only to raise the debt limit temporarily until next year, as a House-passed bill would, because that could set the stage for an election-year showdown with House Republicans emboldened to extract discounts.
“Anyone who says, ‘Let’s move on to this’ — that’s premature,” Orzag said. “But in the hypothetical world — which I understand Secretary Yellen doesn’t want to enter for good reason — where there is no option without huge negative consequences, the question is which is the least bad.”
This comic illustrates the debt ceiling
There may be other potential drawbacks as well. Tobin Marcus, a former policy adviser to Biden now at Evercore ISI, an investment advisory firm, pointed out that regardless of the debt ceiling debate, the White House will still need to reach an agreement with Congress to fund the government. The federal government will shut down on Oct. 1 without a bipartisan deal on spending, and there are no widely discussed options for doing so unilaterally.
“Not only are there unanswered questions about legality and market reaction, but unilateral action on the debt ceiling will make a bipartisan deal on spending this fall even more difficult,” Marcus said. “They may decide at the last minute that unilateral action is the least bad solution, but certainly not the ideal solution.”