1. The best spin one can put on the Solyndra debacle is that the administration was incompetent. Yes, that’s better than corrupt, but this is a President who ran on his ability to deliver a competence upgrade.
2. Team Obama was so enamored of green technology that they flushed away $500m+ of borrowed money on a company that had no ability and no plan to turn a gross profit, let alone a net profit. Ideology trumped facts, knowledge and experience. Exactly what Obama said he and the Democrats would come to Washington to change.
3. Despite the huge loans, Solyndra was quickly running out of cash. So Obama’s Department of Energy gave away the US’s rights as senior creditors to a politically connected group writing a relatively small check. Again, assuming incompetence instead of corruption, this was a huge and unnecessary step. However, never wanting to admit defeat, the Obama team screwed the public out of whatever we may have scrounged through the bankruptcy process. Weak and incompetent.
JUST PASS THE BILL
NOT AN A-LA-CARTE MENU
The White House is staying on message, but how does it sound to the impressionable independents? Intransigent.
But Obama wants to be perceived as a non-ideological problem solver. And he wants to paint the GOP as intransigent and unwilling to compromise.
So the public sees Obama putting forth a murky proposal and saying take it or leave it. And the GOP is saying, hmm, this deserves consideration and the good ideas should pass. And POTUS harumphs and says pass the WHOLE bill.
When asked why the whole bill must pass the White House says times-a-wasting. But the public remembers how a vacation preceded the introduction of the new jobs package. Wasn’t time-a-wasting then?
This is just another unforced error. Obama will now allow the GOP to come off looking reasonable when they cherry pick and pass stuff “both sides agree on.” And POTUS will look petulant to those important independents.
OK, forget the constitutional question for now. Just image where we’d be had President Obama chosen to ignore the statutory debt limit under the 4th Section of the 14th Amendment to the US Constitution.
1. There would be no agreed budget cuts, so the project national deficit and national debt would be higher.
2. There would be a constitutional crisis with immediate lawsuits filed against the executive challenging the exerted power as dictatorial and unconstitutional.
3. Political acrimony would be increased.
It is safe to say that S&P would have downgraded the US credit under this scenario. Moody’s and Fitch would have been more, not less likely to do the same.
As the US sailed into uncharted constitutional waters it is hard to imagine financial markets would have been calmer.
Despite the loud entreaties from his base, it seems that even in the unlikely case that he’d have prevailed in front of SCOTUS, Obama made the right call on the 14th Amendment.
Yeah, we know the USA has both virtual and real dollar printing presses. So every Modern Monetary Theory (MMT) proponent is reminding us this morning of how S&P “doesn’t get it” and thinks the US could default on its debts.
But, by statute, the US Treasury does not control the printing presses. That’s the domain of the Federal Reserve. And while the Fed can flood the banking system with cash, it has no mechanism to fill the Treasury. The Treasury is essentially restricted to taxation, borrowing, and asset sales.
So when S&P includes political factors in its downgrade, one has to acknowledge there’s something greater than a zero chance the US could default even with its vaunted currency printing capacity.
Yes, there’s been plenty of discussion of the Treasury’s statutory capability to coin new funds. But the executive would need the political will to use such a mechanism. One could imagine a scenario where a President feels a default would be to his political advantage, so it is reasonable for S&P to acknowledge it.
The greater reason for downgrading debt is not default risk but risk of currency debasement. But saying default is impossible because the US controls the printing press is confusing something that shouldn’t happen with something that couldn’t happen.
Today, the New York Times joins the crowd of debt ceiling deniers, arguing the 14th Amendment to the US Constitution trumps any statutory debt ceiling and urges President Obama to press the issue to the Supreme Court.
But the argument is weak. Article 4 of the 14th Amentment states:
The validity of the public debt of the United States, authorized by law … shall not be questioned.
The constitutionality of the debt ceiling can be reduced to two questions:
- What is meant by validity?
- Does the existence of a debt ceiling invalidate the public debt?
Validity: The simplest reading of this clause is a prohibition of Congressional repudiation of lawful debt. Congress once tried to change the terms of repayment from gold to paper and the Supreme Court struck down the changes by finding the Congress attempted to invalidate the gold debt. Is missing an interest payment invalidation of debt? No. There is a huge difference between inability to pay and claiming the debt does not exist. If intent to pay is still there then there’s an implicit acknowledgement of validity. Yes, the money is owed, but we’re unable to pay on time.
The most straightforward reading suggests that the 14th Amendment prohibits the Congress from invalidating specific debt via legislation.
Does the debt ceiling invalidate public debt?: The debt ceiling is a credit limit. The Congress has stated that notwithstanding any other legislation (e.g. appropriations) the US shall not net borrow above the credit limit. Is borrowing the only method of paying existing debt? Of course not. Existing debt can be paid from tax revenues or the proceeds of asset sales or the minting of new currency. Borrowing is the most common way of paying interest and principal on debt but many other means exist. So statutorily preventing one means of raising cash could only violate the 14th Amendment if 1) missing a payment made the debt “Invalid” and 2) there are no other means of making the payments.
So to those who wanted the President to take executive action to pay debt (and other bills) the 14th Amendment poses significant legal problems. Minting coins would be more straightforward and legal.
So the New York Times is being quite sloppy by flogging the 14th Amendment as a solution to the political problems caused by the debt ceiling. Minting coins would serve the same political purpose the Times advocates and would not put the US further into debt. Ironically, minting coins would take power away from the Federal Reserve, giving the executive the ability to directly add the amount of dollars in circulation. Gimmicky, yes; inflationary, yes; legal; yes.
