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Source : BUSINESS_STANDARD
Last Updated: Sun, Jan 13, 2013 19:40 hrs

Blowing through the debt ceiling may be the best of (US) President Barack Obama’s bad options. He has to meet US obligations, and he can’t cut spending or raise taxes without Congress’s say-so. The only choice is to borrow more — but some lawmakers want to stop him from doing that. Legally, his safest bet is to ignore them.

A faux solution making the rounds is for the treasury department to mint a $1-trillion coin, technically putting the government below the debt limit. But the authorising law probably applies only to commemorative coins, and besides, the proposal just sounds silly. Another suggestion would see the government issuing IOUs, as California did during its 2009 Budget crisis. That’s creative but at best a temporary fix.

One promising approach has already been rejected by Obama. A clause in the US Constitution’s Fourteenth Amendment essentially says the feds cannot renege on debts, meaning the borrowing limit could, if it came down to a court decision, be declared unconstitutional. A possible sticking point, however, is that the clause doesn’t actually say the president can issue more debt without congressional authorisation.

And in law, he probably can’t. Only Congress is invested with the power to tax, borrow or spend. If lawmakers don’t raise the debt cap, Obama is out of luck. Of course, so are the critics who think he can just spend less than instructed by Congress. That, too, would violate the Constitution.

Boxed in legally, the president could decide to do whatever he deemed in the public interest: Reduce spending, increase borrowing, even raise taxes or sell public lands. But the options aren’t necessarily equal in the law’s eyes. Spending cuts, for instance, would require Obama to mess with the policy judgments Congress made. Choosing whom to pay would be a major intrusion on the Hill’s power.

Issuing more debt would avoid getting into Congress’s business in this way. As a result, it’s arguably the least illegal of the various alternatives. Investors might wonder whether the extra debt was fully backed by the government and that could trigger volatility, but it would beat a federal default. Best of all, it could force deficit hawks in Congress to stop relying on gimmicks like the debt ceiling and start making tough choices about spending.




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