Will Barack Obama Use The 14th Amendment As A Way To Get Around The Debt Ceiling?

As the deadline to raise the debt ceiling draws closer, many are now wondering if Barack Obama will try to go around Congress if a deal is not reached by August 2nd.  In particular, a number of voices (including U.S. Treasury Secretary Timothy Geithner) are now touting the 14th Amendment as a way to get around the debt ceiling.  There are others that believe that Barack Obama should invoke "national security" in order to avoid a default.  If the Republicans and the Democrats do not reach a deal by the end of July, things are going to get really, really interesting and there is no telling what Barack Obama may do.

Section 4 of the 14th Amendment to the U.S. Constitution says the following....

"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."

At a breakfast hosted by Politico last month, U.S. Treasury Secretary Timothy Geithner actually pulled out a copy of the Constitution and read this clause out loud.

Geithner (and others) are now attempting to argue that the debt ceiling is actually unconstitutional.  They believe that the phrase "shall not be questioned" means that if the U.S. government refuses to make debt payments it would be directly violating the U.S. Constitution.

So what does Barack Obama think of this legal theory?

Reporters have been trying to ask him this question, but right now Obama is not answering.

Certainly Obama would very much prefer to have the Republicans and the Democrats reach a deal far before the debt ceiling deadline arrives.

So what will Obama do if a deal is not reached?

Nobody seems to know.

But this clause of the 14th Amendment brings up some deeper issues as well.

Does this clause make it unconstitutional for all future generations to renounce the national debt?

Does this clause make it illegal for all U.S. citizens to even question the validity of the U.S. national debt?

Most Americans would like to think that when it comes to constitutional questions there should always be some clear answers.  But the truth is that for many constitutional questions there are a lot of gray areas.

When there is something in the U.S. Constitution that we do not like, that does not mean that we get to ignore it.  We have way too many politicians doing that already.

Personally, I would like to see this phrase in the 14th Amendment changed.  I think that this phrase is way too vague and could potentially open up a whole can of worms.

But of much more immediate concern is raising the debt ceiling.

Yesterday, I talked about how horrible our national debt is and I also talked about how dangerous refusing to raise the debt ceiling would be.

A large number of Americans that are deeply concerned about the national debt are also completely opposed to raising the debt ceiling.

But if we default right now, it is going to make our national debt problem much, much worse.

Think of it this way - if you had friends that were drowning in debt, would you tell them to immediately start defaulting on their mortgage, their car loans and their credit cards?

Of course not.

The penalties, fees and interest rate hikes would kill them.

Well, it is the same thing with the federal government.  Right now we have a great credit rating and we are able to borrow money at extremely low interest rates.

If that suddenly changed, interest rates on our debt would go up dramatically.  Just look at Greece.  Greece is paying somewhere around 28 percent interest on 2 year bonds.  If that happened to us, it would be a complete and total nightmare.

Even if we adopted a "balanced budget" next fiscal year, we would still need to roll over gigantic amounts of debt.

If interest rates on U.S. government debt started skyrocketing, interest payments on the U.S. national debt would very quickly start eating up the majority of our tax dollars.  We would soon have very, very little money to spend on anything else.

Wrecking our credit rating just to make a point about fiscal responsibility is not going to solve anything.

What point would there be to wrecking our financial system when neither political party has a viable plan for something better?

A lot of people (including some readers of this column) are actually rooting for a financial crash so they can watch the world go down in flames.

Yes, an economic collapse is coming, but that doesn't mean that we should wish for it and try to get it to happen faster.

Look, you are probably going to die someday.  That doesn't mean that you should go out and run your car into the nearest tree.

If we blow out our national credit rating right now, it is going to make it 10 times worse to try to get a handle on our national debt.

Plus, if the world financial system was to crash, it would create a massive amount of economic pain for hundreds of millions of people.

Most Americans cannot even conceive of what the consequences of a complete and total financial collapse would be.  It is not something that we should be wishing for.  Life as we know it would change dramatically.

Once our economic system crashes, it is not going to be able to be put back together again so easily.  Most Americans have no idea how bad things could get.

Yes, we must do something about the national debt.  We must stop spending ourselves into oblivion.  We must dismantle the current debt-based financial system that we are operating under and we must transition to something new.

But to purposely default by refusing to raise the debt limit would bring a whole lot of future financial pain into the present and would make it almost impossible to transition to a new financial system in an orderly fashion.

The sad thing is that a whole lot of people out there actually believe that the current system can be fixed.  Many Republicans believe that if we can just cut spending enough we will be okay.  Many Democrats believe that if we can just raise taxes on the wealthy enough we will be okay.

But the truth is that the current system cannot be fixed.  It is designed to be a perpetual government debt machine from which there is no escape.  We have reached a terminal phase of the debt spiral and we get closer to a collapse every single day.

According to John Williams of Shadow Government Statistics, if the U.S. government used GAAP accounting principles the "real" U.S. government budget deficit each year would be somewhere in the neighborhood of 5 trillion dollars.  Williams believes that the U.S. government is essentially bankrupt and that our current system is not anywhere close to sustainable....

Generally, you'll find that the accounting for unfunded liabilities for Social Security, Medicare and other programs on a net-present-value (NPV) basis indicates total federal debt and obligations of about $75 trillion. That's 15 times the gross domestic product (GDP). The debt and obligations are increasing at a pace of about $5 trillion a year, which is neither sustainable nor containable. If the U.S. was a corporation on a parallel basis, it would be headed into bankruptcy rather quickly.

Sadly, Williams is right.  We are drowning in debt.  Something has got to be done.

But refusing to raise the debt limit is not going to help.  If we allow our credit rating to be destroyed we could quickly find ourselves paying a trillion dollars or more just in interest on the national debt every single year.

If we want to handle the national debt monster, we need to do it the right way.  One thing that we need to do is to admit how bad the situation really is.

The truth is that we are in a lot more than $14.3 trillion in debt.

For example, according to The Financial Armageddon blog, the combined total for all "U.S. government bailouts" and "U.S. government guarantees" related to the financial crisis comes to a grand total of over 20 trillion dollars.

Also, the "unfunded liabilities" of the U.S. government are estimated to be somewhere between $60 trillion and $100 trillion.

If Bill Gates gave every penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

There are no easy solutions to our problems.  If we refuse to raise the debt ceiling our interest costs on the national debt may end up doubling or even tripling in short order.  That is not going to help us get our fiscal house in order.

Right now the state of the economy is so fragile that one really bad "shock" could cause it to totally fall apart.  The U.S. economy is like a patient that is barely hanging on in the operating room.  If we don't show patience and discipline we could end up with a total disaster.

Look, you will probably not find many writers on the entire Internet that harp on the horror of the U.S. national debt more than I do.  It is a crisis that is so nightmarish that it is hard to even put into words.

But refusing to raise the debt ceiling is not going to solve anything.  In fact, it would only accelerate our demise.

Our economic system is in bad enough shape already.  Let's not do any unnecessary damage to it.

According to a new poll conducted by CBS News and The New York Times, 39 percent of all Americans believe that the U.S. economy is now in a "permanent decline".

Sadly, that is the truth.  We are in a permanent decline.  Just "tweaking" a few things is not going to work.  Doing what the Democrats are telling us to do is not going to work.  Doing what the Republicans are telling us to do is not going to work.

Our financial system is fundamentally flawed from the Federal Reserve on down.  If we continue on the path that we are on, a horrific collapse is inevitable.

We need truly dramatic changes if our way of life is going to survive.

Unfortunately, most Democrats and most Republicans believe that they can fix the current system somehow.

It is not going to work.