Did Kevin McCarthy Forget about Silicon Valley Bank or is He Just Bluffing Regarding the Debt Ceiling?
When Silicon Valley Bank failed and the debt ceiling was still months away, I formed the belief that the ensuing financial chaos would make House Speaker Kevin McCarthy hesitant to threaten not to raise the debt ceiling in order to secure policy changes, such as cuts to Medicare and other non-military programs.
I came to that belief because Silicon Valley Bank and a couple of other regional banks failed, in large part, because of a sharp decline in the market value of their assets, which included a substantial amount of US government debt. Surely if the failure of a few regional banks could cause such a negative shock, politicians would not want to risk default. After all, a default by the US government would make treasury securities lose so much market value that a large number of banks would be insolvent. This would lead to a devastating financial crisis. Not to mention the negative financial impact on other bondholders, including pension funds, mutual funds, and people who hold them directly. Surely, nobody would possibly threaten this with regional banking crisis of 2023 fresh in mind…
Oh, how wrong I was. It’s clear that this belief of mine was naïve, as McCarthy, egged on by former president Donald Trump, has forged ahead with his campaign to use the full faith and credit of the US government as a bargaining chip. In fact, it seems that he does not even realize that regional banking crisis offers a hint at just how devastating government default could be to the economy. That or perhaps he doesn’t care, because he’s bluffing and would never actually let the government default over the debt limit.
So McCarthy is either bluffing or ignorant. It is probably more charitable to assume that he’s bluffing. Either way, it is frustrating to see President Biden negotiating with him when a very strong legal case can be made that he doesn’t have to.
A way to make this case is that by having a debt ceiling, congress is contradicting itself in terms of its decisions regarding spending and bringing in revenue through taxation. One set of laws dictates tax revenue and spending, which determine the size of the deficit. (And, of course, the deficit contributes to national debt.) Another law puts a limit the debt. It is impossible to follow all of these laws, so which should be followed?
Assuming they’re all equally constitutional, we should follow whichever laws cause the least harm. Since it’s clear that default over the debt limit would be catastrophic, the debt limit is the law that ought to be ignored. And if they are not equally constitutional then ignore whichever law is “least constitutional.” Which brings me to another route to legally nullify the debt ceiling…
Perhaps a more straightforward path to avoid the debt limit (or having to negotiate over it) would be to recognize that it’s unconstitutional. It violates the 14th Amendment, which states,
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.
This is straightforward. What else could “validity of public debt” refer to other than whether or not it will be paid back? What else could “shall not be questioned” mean other than that under no circumstances will the government ever consider not paying back its debt? As the debt ceiling involves not paying back debt, it is in violation of the 14th Amendment and is, thereby, unconstitutional.
Whichever route is taken, if it allows us to bypass a potentially apocalyptic law like the debt ceiling then I am all for it. Better yet, once it is recognized to be unconstitutional, perhaps our representatives will never implement another debt limit ever again and we can avoid the artificial crises debt limits create once and for all.