http://www.nytimes.com/2013/01/10/opinion/an-escape-hatch-for-the-debt-ceiling.html?_r=0
This sounds more reasonable and legal than the platinum coin nonsense. Is it legal? Would it be a good idea? Would banks be willing to buy the scrip from recipients at face value as happened in California? Would House Republican heads explode?
Seems pretty clear it would be legal. I guess the question would be whether banks would accept script that didn’t give them any legal claim to the money it represented. I suspect they’d want to pay at least a little below face value to cover the risk of the Feds never ponying up the cash.
I’m pretty sure that it would give the banks legal claim. Even so, I can’t see what a bank would gain by buying them at face value.
But apparently banks did just that in California.
Why?
Because California successfully did it in 2009.
You really think it’s in the same league as the platinum coin idea?
California has a line-item veto. The Federal government does not, and I have yet to see an explanation of what law or constitutional authority the President would rely on to issue scrip. What happens in Sacramento may have to remain in Sacramento.
Whether or not the Federal government may issue scrip is probably an academic question given our current situation: the main problem is that the debt limit and current government funding are going to expire at roughly the same time. Republicans are now threatening not to act on the government’s budget unless there is a resolution of the debt ceiling issue. If the budget is not addressed, the government will shut down on March 27, at which time there will clearly be no legal authority for the executive to pay anybody anything. So, even if scrip could legally address the debt ceiling issue, it unquestionably could not be used to address the government shutdown issue.
If the script represented a legal claim to future payment, then Obama would be issuing debt without authorization from Congress, which would be illegal. The whole point of the IOU idea is that it doesn’t have any legal force, its just an acknowledgement that the 2013 budget required the Feds to pay Simplicio $X dollars, and they intend to get to doing that as soon as Congress gets its head out of its ass.
Obama doesn’t need a Constitutional Authority to write stuff down on a piece of paper. He probably doesn’t have a law authorizing him to send Harry Reid a birthday card either.
A “formal acknowledgment of a pre-existing monetary claim” sounds like debt to me. It’s possible that there is some technical reason that scrip does not fall within the debt-ceiling statute, but I don’t see that the article makes that case.
Also, are recipients obliged to accept it? Could an employees’ union or some other large creditor sue for breach of contract? If it’s not debt, as Simplicio suggests, then it’s default, isn’t it?
But you’re still missing the key point of our current situation: the government only has the ability to spend money until March 27. The ability of the government to fund those obligations will probably reach its limit in early March, at which point the extraordinary measures to deal with the debt limit will be exhausted.
Now, for the two or three weeks between the exhaustion of the funds in the Treasury and the expiration of the government’s authority to make obligations for payment of people, goods and services, maybe scrip would be allowable, because the Executive still has the legal authority to obligate funds, but simply the inability to make good on those obligations.
However, unless Congress passes a budget by March 27, the ability to obligate funds on contracts for people, goods and services goes away, regardless of what happens to the debt limit. Scrip may most certainly not be used after that date. So, I’m inclined to conclude that scrip MIGHT be an option to get the government through the month of March, but that doesn’t solve much of anything if a budget doesn’t get passed.
Sorry, this is categorical bullshit. The president doesn’t need a constitutional or legal basis to take official acts on behalf of the United States Government? That is one of the dumbest arguments I have ever seen on this forum.
Issuing debt creates a monetary claim. Simply acknowledging one exists in writing isn’t debt.
They wouldn’t be obliged to accept it. But most people want to get paid, even if its in pieces of paper they have to bring to the bank to use.
There almost certainly will be lawsuits, script or no, if the gov’t goes more then a few weeks without passing the debt ceiling. AARP will sue on behalf of Social Security beneficiaries, for example. I don’t think the script thing makes them either more or less likely to sue.
The author uses a legal reference in the article which he seems to feel backs up his contention that scrips are not “a new borrowing of money”.
I don’t see it as saying that, but I’m not an economist so it’s possible that that reference shows that it’s legal. Can someone here make sense out of it for us non-CPAs?
What a bank has to gain is the approval and loyalty of its customers. Anyway, were the U.S. to fail, banks would have more worries than the scrip.
Some right-wingers claim that, as long as Obama is President, subverting the economy is their worthy goal. If the use of scrip gives such saboteurs an opportunity to display their malice for all to see, perhaps use of such scrip would serve a worthy purpose.
Not missing the point, just think the wider issue of budget negotiations should get its own thread. The script idea is being put forward to solve the debt ceiling issue. The fact that it doesn’t solve all possible forms of GOP hostage taking is worth noting, but not really relevant to the question asked in the OP.
What legal basis allows the Prez to answer petitions regarding the construction of Death Stars?
The script isn’t anything other then a piece of paper telling people what the law is. The President doesn’t need any special legislation to communicate the effects of legislation to the public.
Do you think that if these scrips are issued, that they will have negotiable value? When California issued its registered warrants, banks honored them. Do you expect the IOUs to have value and be traded?
(Please note there is no ‘t’ in scrip.)
Who cares? If I get an autographed postcard from Obama, that has value and can be traded as well. Obama doesn’t need legislation to allow him to sign his name.
Banks will put value on the IOU’s because they will expect Congress to pass legislation later allowing them to be traded in for cash. Nothing Obama does will give them value.
(plus, you seem to be drifting from your original argument, are you holding that Obama needs legislation to do anything on behalf of the Presidency, or just things that create things that have value and can be traded?)
I’m a good deal less certain of the President’s authority to issue such scrip than of his authority to mint trillion-dollar platinum coins.
The deal is, Congress has passed laws obligating the President to spend money on X, Y, and Z. AFAIK, it didn’t grant him the authority to issue scrip in lieu of payments for X, Y. and Z.
I suppose he could, on his own authority, send out notifications along the lines of “Law A says you’re entitled to N dollars from the Federal treasury, but Law B, the debt ceiling law, blocks me from issuing you a check for the money. Once Law B is modified appropriately, you’ll get your money.”
But I don’t see how these would be negotiable. If you sold or gave the letter to someone else, you wouldn’t be selling or giving away a claim to the money the government owed you. You could probably use the letter as collateral for a loan, coupled with a commitment to sign over the check when you received it. But that would be different, and a good deal more complicated than scrip.
That’s what’s being proposed, as I understand it.
The idea is that once Congress got around to agreeing on a debt-ceiling solution, as part of the legislation involved in that deal, they’d pass a law saying that the gov’t will pay holders of the scrip the face value, and won’t pay people the money the scrip was issued for.
So Obama gives me a piece of paper saying that the current budget mandates the gov’t is supposed to pay me 50$. I get that, sell it to the bank for 50 and go on my merry way, mildly annoyed at the extra effort but otherwise happy. Then Congress passes a law saying that people holding scrip get paid the face value, but also changing current law so that I'm not owed 50 anymore. I get my $50, the bank gets its $50 and the gov’t spends the same amount as it would have if the whole deal had never happened.
Obviously, there’s no guarantee that Congress would pass such a law, which is why banks might pay slightly less then face value for the scrip. (though they almost certainly would, as reneging on hundreds of billions of dollars worth of commitments after the fact would probably blow up the economy,)
It would blow up the economy. Of course, seeing as we haven’t recovered yet from the last time the economy blew up when people discovered that their property wasn’t worth as much as everyone said it was worth, I can see people being a bit skittish.
None of which has anything to do with the satisfaction of government debts. This example is totally irrelevant.
There should be no controversy at all that the executive has no authority other than what the law provides to create items of value for government debts. For example, if Congress prohibits the use of any appropriated funds to be given to the Contras, Oliver North cannot somehow come up with some way to provide funds to the Contras so as to violate the law passed by Congress. Are we together so far?
Now we come to this example. Let’s say I am a Federal employee. The government only has a debt to me and my work insofar as the government has the legal authority to create an obligation to me. That legal authority is an appropriation (often called a budget). When the budget runs out on March 27th of this year, the government has no obligation to pay me after that date because they have no legal authority to create a debt to me.
However, between whatever date the funds in the Treasury run out (let’s say March 1) and March 27th, the government has an obligation to pay me (assuming I don’t get fired or quit). If there’s no funds in the Treasury, there is still a debt to me. If I am issued scrip for 26 days of work, what am I supposed to do with that paper?
Either it is worthless and nobody will buy it from me, or the scrip has value because it represents a future obligation for the government to liquidate, in which case the scrip does not represent the actual payment for my employment (because there’s no money in the Treasury), but an promise (either implied or explicit) that the government will make good on the value represented by that piece of paper at some future date. How does that paper not represent debt? If it looks like debt, acts like debt, and quacks like debt, how is the issuance of that paper not required to be authorized by Congress under Art I, sec 8?
And seriously, who the hell would want to buy that piece of paper from me, knowing that if the budget and debt impasse is worked out, that Congress could insert just a few little words in a bill to invalidate the scrip?
Except that the scrip is not authorized by any law, so far as I can tell, and its only value is that which people believe that the government – both the Executive and Congress – will make good on that.
Do you think that it is likely that Congress would allow the President to provide for the redemption of scrip once this whole impasse is figured out? I sure don’t. At the very least, it is a very debatable notion. In any case, the scrip would not be protected by the 14th Amendment. And as someone who would probably receive the scrip if it is indeed issued, I would look at that piece of paper as me having bought a little piece of the Brooklyn Bridge until it is proven otherwise. And if a bank agreed to buy the scrip from me, hoo-boy, I’m closing my accounts at that bank, because it would be clear to me that the bank is run by idiots with no sense of risk. Or, perhaps, I’d have to accept a really lousy price for the scrip, like perhaps pennies or dimes on the dollar, in which case I get screwed and the bank stands to win or lose big depending on whether the scrip is redeemable. All of this over 21 days of pay for me.
Not sure of the relevance. Congress has appropriated funds for the spending we’re talking about. In my example, the 2013 budget says Simplicio should be paid 50$. FWIW, I agree the Prez couldn’t use this scheme to fund things that Congress hasn’t appropriated funds for.
Again, I think your un-necissarily confusing the issue by convolving the debt ceiling and the expiration of the budget. The OP’s question just involves the former, and that’s all I’m discussing here.
I disagree. It has value because people expect Congress will eventually agree to redeem it. There’s no (legal) obligation for them to do so, but legal obligations aren’t the only reasons that legislatures do things.
Its not debt because it doesn’t create any legal obligation (beyond what already created by the current budget) for anyone to pay anything. A debt you’re not legally obligated to pay isn’t a debt.
That’s it exactly.
I think its pretty clear that they would, and that at least in the short-term, banks would proceed on the assumption they would. Consider that pretty much every institution that holds scrip will become a lobby for Congress to pass legislation redeeming them. Banks, seniors, Defense contractors, federal employees, state gov’ts, etc. And if recent history has taught us nothing else, its that Congress is really responsive to finance lobbyists.
(But again, I think your drifting from your original argument. Putting aside for a moment whether the scrip would be redeemed or not, are we agreed there isn’t any legal barrier to the Prez issuing the scrip?)