Obama's Debt Ceiling Smoke and Mirrors Speech

Well, I just got done wasting 20 minutes of my evening listening to Obama's deficit reduction speech. What I heard was the same ol' smoke an mirrors that we get everyday from Washington, whether the talking head be Democrat or Republican.

However, I did take a few notes.

Early in his speech, President Obama made the usual Democrat claim that President Clinton had a budget surplus. Of course, the basis for that claim is rooted in politics rather than actual numbers. Go ahead and check the data from the U.S. Treasury if you don't believe me.

Later, Obama wrongly compared increased interest rates on mortgages and other credit tools to tax hikes. There's just one fundamental difference: we pay taxes to the government because we earned money, while we pay interest on credit to private (and quasi-private) corporations because we choose to live beyond our means. That's just an apples-to-oranges comparison with the sole purpose of duping the average American.

Obama also claims that the debt ceiling must be raised or else America will go into default. That is simply untrue.

Under Article I Section 8, Congress has the power "[t]o borrow Money on the credit of the United States". Under Section 4 of the Fourteenth Amendment, "The validity of the public debt of the United States, authorized by law, ...shall not be questioned." The controlling opinion on these two clauses from the Constitution is found in Perry v. United States, 294 U.S. 330, 354 (1935).

Congress lacks the authority to, and is specifically barred from, default. What this means is that no matter what the statutory debt ceiling is, the Treasury must continue paying its bills even if it means incurring new debt. 

Under Article II Section 2, the President "shall take Care that the Laws be faithfully executed". What this presents between the debt ceiling and the appropriations laws passed by Congress is a sort of paradox. On one hand, the Treasury cannot borrow principal beyond the statutory debt ceiling. On the other hand, the President must continue to authorize expenditures as required by appropriations laws.

The debt ceiling did not exist prior to WWI. Prior to that point, Congress had to authorize each individual issuance of debt. In 1917, Congress chose to delegate the power of issuance of debt to the Treasury with a limit on how much debt could be issued. But Constitutionally, the Treasury is not authorized to incur public debt, nor is Congress authorized to delegate such authority to the Treasury.

The statutory debt ceiling is nothing more than a political football. In order to challenge the Constitutionality of the debt ceiling, one would have to have standing. But only the President, Treasury, or Congress would have standing to do so, and I don't see any of them issuing a challenge any time soon.

Even if a true default were an option, the U.S. has "defaulted" under the current Constitution once under President Franklin D. Roosevelt, contrary to what Obama said in his speech. (See: Gold Confiscations)

I'm willing to bet we'll be seeing a "midnight compromise" to paint the politicians in Washington, both Republican and Democrat, as saving the day. Of course, Obama this speech will be used to show Obama as the "Great Negotiater" that made the whole plan come together.

Transcript of Obama's Debt Ceiling Speech