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America’s economy
Raising the debt ceiling has in recent years become a point of contention with lawmakers in Congress
Dubai – Al Arabiya.net
Published in: May 13, 2023: 03:04 PM GST
Last updated: May 13, 2023: 05:09 PM GST
Among the solutions offered to avoid the United States defaulting on its debt in the event of not reaching an agreement to raise the debt ceiling is resorting to Article 14 of the US Constitution.
Although raising the debt ceiling is essentially a routine process, in recent years it has become a bone of contention with Republican lawmakers seeking spending cuts in return for raising the ceiling.
Article 14, which was added to the US Constitution in 1868 after the War of Secession, stipulates that “the validity of the public debt of the United States permitted by law shall not be in doubt.” In other words, the expenditures approved by the vote must be respected, including pensions, according to What was reported by the agency “Agence France Presse”.
Robert Hackett, professor of law at Cornell University, explained that after the Civil War, “fear grew in the victorious northern states that southern legislators who were returned to Congress would continue to destroy our federal unity, but from within by renouncing the federal debt resulting from the war,” according to what was reported by the agency. “AFP”.
The debt ceiling came to be added in the year 1917 to this text.
Can Biden use it?
Mark Graber, a professor at the University of Maryland Law School, stressed that Biden, by hinting that he might resort to this provision, “sought to say that if Congress did not approve raising the debt ceiling, he could in any case pay the obligations because this is his constitutional duty.”
Joe Biden does not need certain measures. Robert Hockett has made it clear that he should “ask Treasury Secretary Janet Yellen to simply continue issuing that debt if needed to pay the nation’s bills”, or he could act as if the debt ceiling didn’t even exist.
-However, the president has so far ruled out resorting to this mechanism in the short term due to legal complications, preferring to pass the current crisis to think about it.
-On Thursday, Janet Yellen, during a press conference on the sidelines of a meeting of the Group of Seven in Japan, questioned the usefulness of resorting to Article 14.
And she considered that this strategy is “a subject of discussion from a legal point of view,” stressing that she does not want to reach a stage where alternatives to raising the debt ceiling are being considered.
Possible difficulties
The possibility of the Republican opposition resorting to the judiciary may be the main obstacle to adopting this mechanism, but Robert Hockett does not expect the Republicans to do so, considering that this will put them “in a very uncomfortable position as they will initiate prosecutions to force the president to default on a national debt.”
On the other hand, Mark Gruber saw the opposite, explaining that “Republicans will launch a counterattack and say that Joe Biden does not understand what Article 14 is about debt only and that he cannot pay off the accumulated debt in the first place without making new expenditures.”
Either way, there are risks, according to University of Florida law professor Neil Buchanan.
Exceeding the level of leverage set by Congress would be against the law, but failure to respect the spending obligations of Congress may be a more serious violation. In this particular case, there is a possibility of judicial prosecutions also in the form of a collective complaint filed by retirees who are no longer receiving their pensions.
economic consequences
Fundamentally, markets are very hostile to uncertainty, and may not particularly accept the uncertainty that may result from this situation.
“If investors see that the debt that the Treasury is selling may later be deemed invalid by a court decision, they may hesitate to buy it,” said Nancy Vanden Houten, an economist at Oxford Economics, and this could lead to “a significant rise in interest rates.”
Isaac Boltansky, director of policy research at BTIG, said that the matter involves a risk, explaining that the court’s confirmation of the validity of the debt “will be positive in the long term for the debt markets,” because stopping the regular raising of the debt ceiling “may completely avoid making this completely unhelpful maneuver.”
On the other hand, “if the courts reject this maneuver, we will return to the starting point, but with a large amount of economic damage.”
Houghton said that the measure “may shake the confidence of investors and companies and have a negative impact on the economy,” but the repercussions “will be much more harmful” if the treasury does not pay what it owes within the specified deadlines.
