# The 14th Amendment and the Debt Ceiling
**URL:** https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739
**Category:** Great Debates
**Created:** [October 9, 2013, 2:01am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739 "2013-10-09T02:01:31Z")
**Posts on this page:** 20
**Page:** 5
### Author:  [@Lemur866](https://boards.straightdope.com/u/Lemur866)
#### Post date: [October 9, 2013, 10:43pm UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/81 "2013-10-09T22:43:20Z")
> [@deltasigma](#):
>
> I don’t care what you are and it does seem that you are not able to see the point I’ve been trying to make.
What point were you trying to make? Because I can’t see it.
Are you arguing that cutting Social Security dramatically would be a dick move, and would undermine the legitimacy of the social contract and those who advocated it would find their electoral support vanish? OK, sounds plausible.
Or are you arguing that cutting Social Security dramatically would be against the law?
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [October 9, 2013, 11:08pm UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/82 "2013-10-09T23:08:54Z")
> [@Lemur866](#):
>
> What point were you trying to make? Because I can’t see it.
>
> Are you arguing that cutting Social Security dramatically would be a dick move, and would undermine the legitimacy of the social contract and those who advocated it would find their electoral support vanish? OK, sounds plausible.
>
> Or are you arguing that cutting Social Security dramatically would be against the law?
I think I’ve been pretty clear and if people don’t understand that’s unfortunate but it’s not worth the effort to me to attempt any further exposition. Feel free to interpret my resignation however you please.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [October 9, 2013, 11:12pm UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/83 "2013-10-09T23:12:44Z")
I did run across this [article](http://www.businessinsider.com/treasury-could-issue-super-premium-bonds-2013-10) that offers an interesting end run around the debt ceiling. If I understand it correctly, what the treasury does basically is redeem future notes at far above face value but at an inflated interest rate.
> [@](#):
>
> Levine [provides a simple, clear explanation](http://www.bloomberg.com/news/2013-10-02/mint-the-premium-bonds-.html) of how super-premium Treasury issuance could help the Treasury Department to get around the debt ceiling:
>
> [ol]
> [li]The U.S. government takes in $277 billion in tax revenues each month, and spends $452 billion each month, for a monthly deficit of around $175 billion.**[/li][li]It also has, on average, call it $100 billion of Treasury notes coming due each month.**_[/li][li]Instead of just rolling those Treasuries – paying them off at 100 cents on the dollar by issuing new Treasuries at 100 cents on the dollar – it should pay them off at 100 cents on the dollar by issuing new Treasuries at 275 cents on the dollar and using the extra money to pay its bills. The 10-year yield today is around 2.6 percent, so you could sell a 10-year with a 23 percent coupon for 275 cents on the dollar._\*\*\* The 30-year is about 3.9 percent, so a 14 percent coupon should get you there. Etc. Math [here](https://docs.google.com/spreadsheet/ccc?key=0AgjqtfJEDyb-dEl2c0FremlIX1k2WjV5ZUdYODFQV1E&usp=sharing).[/li][li]That’s it. You aren’t adding debt, so you never hit the debt ceiling, but you keep getting more money.[/li][/ol]
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### Author:  [@PhillyGuy](https://boards.straightdope.com/u/PhillyGuy)
#### Post date: [October 10, 2013, 12:33am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/84 "2013-10-10T00:33:09Z")
> [@deltasigma](#):
>
> I did run across this [article](http://www.businessinsider.com/treasury-could-issue-super-premium-bonds-2013-10) that offers an interesting end run around the debt ceiling.
If the President relied on a hyper-literal and/or gimmicky legal interpretation like this to evade the debt limit, he would be condemned for dictatorial behavior just as strongly as if it he did it in a more straightforward manner. And he’d be making the job of Jon Stewart’s writers unnecessarily easy at the same time.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [October 10, 2013, 12:38am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/85 "2013-10-10T00:38:04Z")
> [@PhillyGuy](#):
>
> If the President relied on a hyper-literal and/or gimmicky legal interpretation like this to evade the debt limit, he would be condemned for dictatorial behavior just as strongly as if it he did it in a more straightforward manner. And he’d be making the job of Jon Stewart’s writers unnecessarily easy at the same time.
Interpretation of what pray tell? Did you even bother to look at the article. No, you didn’t. It’s perfectly legal and requires nothing more than changing some internal Treasury regulations. The only real question is what kind of reception such a bond issue would get in the market.
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### Author:  [@PhillyGuy](https://boards.straightdope.com/u/PhillyGuy)
#### Post date: [October 10, 2013, 1:14am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/86 "2013-10-10T01:14:29Z")
> [@deltasigma](#):
>
> Interpretation of what pray tell? Did you even bother to look at the article. No, you didn’t.
Perhaps I was unduly influenced by the headline. And [the best link in your link](http://www.bloomberg.com/news/2013-10-02/mint-the-premium-bonds-.html), while advocating the idea, also calls it “hare-brained scheming.” Author Matt Levine admits that compared to minting a trillion dollar coin, "my preferred creepy trick is creepier . . . "
Yes, he does walk that back a bit:
> [@](#):
>
> as lunatic schemes go, it gives off less of a banana-republic-from-outer-space whiff than the platinum coin does . . .
Unless the GOP backs down, all the President’s medium-term options are going to look bad. I like the guy, but he was nuts to take the job he has. If I was him, I’d quit.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [October 10, 2013, 1:26am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/87 "2013-10-10T01:26:14Z")
> [@PhillyGuy](#):
>
> Perhaps I was unduly influenced by the headline. And [the best link in your link](http://www.bloomberg.com/news/2013-10-02/mint-the-premium-bonds-.html), while advocating the idea, also calls it “hare-brained scheming.” Author Matt Levine admits that compared to minting a trillion dollar coin, "my preferred creepy trick is creepier . . . "
>
> Yes, he does walk that back a bit:
>
> Unless the GOP backs down, all the President’s medium-term options are going to look bad. I like the guy, but he was nuts to take the job he has. If I was him, I’d quit.
Yeah, that’s a pretty good article - thanks. I liked this paragraph that explains the hocus pocus Goldman Sachs did with Greek debt in order to get them admitted to the EU.
> [@](#):
>
> I think this basically works and, as lunatic schemes go, it gives off less of a banana-republic-from-outer-space whiff than the platinum coin does. That’s partly because it looks like a banana-republic-from-earth sort of scheme. Because it is! This happens! Countries really do enter into contracts that require high future payments but that create less formal “debt,” in order to get around restrictions on their debt. [Greece did exactly that](http://www.bloomberg.com/news/2012-03-06/goldman-secret-greece-loan-shows-two-sinners-as-client-unravels.html), entering a swap with Goldman that required large future payments but that reduced its official debt-to-GDP ratio in order to formally comply with EU treaties.
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### Author:  [@UltraVires](https://boards.straightdope.com/u/UltraVires)
#### Post date: [October 10, 2013, 3:44am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/88 "2013-10-10T03:44:21Z")
> [@Terr](#):
>
> There is no justifiable reliance in this case. All the recipients know they have no contract, and all the recipients know ( **and have seen it happen** ) that the terms can be changed, unilaterally, at any time.
The government has made minor changes like raising the retirement age a couple of years. A wholesale “Neener, neener. We’re not paying you any social security, even though you’ve paid your entire working life” would have devastating consequences. The government would never have the popular support to pass such a program again? After that happened, try getting a similar payroll tax for health care with the promise of government provided health insurance. “Sure,” the public would say, “we see how this works. We’ll never see the health care” and elect people to vote it down.
This lack of trust in government would cause these people to feel cheated out of what they were promised. We can quibble about whether it is a legal or moral promise but I still don’t see the difference, though I admit that the courts disagree.
Scenario #1: The government takes money from a citizen and promises to pay back the money with interest in 10 years. (A bond). The government passes legislation saying that no bond payments will be made.
Result: Unconstitutional default on debt.
Scenario #2: The government takes money from a citizen and promises to pay it back after age 65. (Social Security). The government passes legislation saying that no social security payments will be made.
Result: Perfectly acceptable legislative action.
What is the practical difference other than the fact that courts have placed different labels on each scenario? Some have said that I should have no reliance on the government for social security payments because legislation can change. If so, then why are payments on the treasury bonds I hold not also subject to the same legislative change?
Ah, because the 14th amendment forbids it. But that logic is circular. Why does the 14th forbid default on bonds, but not a default on my social security payments?
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### Author:  [@Terr](https://boards.straightdope.com/u/Terr)
#### Post date: [October 10, 2013, 4:16am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/89 "2013-10-10T04:16:17Z")
> [@jtgain](#):
>
> The government has made minor changes like raising the retirement age a couple of years. A wholesale “Neener, neener. We’re not paying you any social security, even though you’ve paid your entire working life” would have devastating consequences.
That wouldn’t happen. But ages will be raised again and the payments may be lowered. .
> [@](#):
>
> Scenario #1: The government takes money from a citizen and promises to pay back the money with interest in 10 years. (A bond).
And gives the citizen a personal, written, contract.
> [@](#):
>
> Scenario #2: The government takes money from a citizen and promises to pay it back after age 65. (Social Security).
A promised backed by no personal, written, contract.
You don’t see the difference?
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### Author:  [@UltraVires](https://boards.straightdope.com/u/UltraVires)
#### Post date: [October 10, 2013, 4:26am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/90 "2013-10-10T04:26:37Z")
Contracts don’t have to be personal or written (statute of frauds excepted and not relevant). As long as you make a promise that induces or requires a person to act to his detriment, and that person so acts to his detriment, it’s a legally enforceable contract.
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### Author:  [@Terr](https://boards.straightdope.com/u/Terr)
#### Post date: [October 10, 2013, 4:28am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/91 "2013-10-10T04:28:06Z")
> [@jtgain](#):
>
> Contracts don’t have to be personal or written (statute of frauds excepted and not relevant). As long as you make a promise that induces or requires a person to act to his detriment, and that person so acts to his detriment, it’s a legally enforceable contract.
Well, they made the promise that by 65, people would be getting the full payment. Has that been kept?
And I believe someone already referred you to the Supreme Court case (Flemming v. Nestor) that decided that receiving Social Security benefits is not a contractual right.
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### Author:  [@Bricker](https://boards.straightdope.com/u/Bricker)
#### Post date: [October 10, 2013, 12:27pm UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/92 "2013-10-10T12:27:53Z")
Now that **deltasigma** has discovered a new claim that he feels has some solid basis for defense his previous enervation has vanished and he is once again eager to write in defense of it. I guess it’s pure coincidence that his interest in explaining his words returns the moment he has a defensible point; his glorious ennui is no more.
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### Author:  [@HurricaneDitka](https://boards.straightdope.com/u/HurricaneDitka)
#### Post date: [October 10, 2013, 6:56pm UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/93 "2013-10-10T18:56:02Z")
> [@jtgain](#):
>
> Scenario #1: The government takes money from a citizen and promises to pay back the money with interest in 10 years. (A bond). The government passes legislation saying that no bond payments will be made.
>
> Result: Unconstitutional default on debt.
>
> Scenario #2: The government takes money from a citizen and promises to pay it back after age 65. (Social Security). The government passes legislation saying that no social security payments will be made.
>
> Result: Perfectly acceptable legislative action.
> What is the practical difference other than the fact that courts have placed different labels on each scenario? Some have said that I should have no reliance on the government for social security payments because legislation can change. If so, then why are payments on the treasury bonds I hold not also subject to the same legislative change?
>
> Ah, because the 14th amendment forbids it. But that logic is circular. Why does the 14th forbid default on bonds, but not a default on my social security payments?
In Scenario #1, the people providing the money have a choice. They could, rather than buy Treasury bonds, go buy Chinese stocks, or Greek bonds, or anything else. They have a CHOICE in the matter, and will likely use that freedom in a way that harms the US economy. That’s why everyone’s scared of a default.
In Scenario #2, the people who are making the payments don’t really have a choice. The .gov will keep pulling the money out of their paychecks whether they like it or not. There’s no real risk of them taking their money and doing something else with it.
That’s the practical difference. One has severe consequences for our economy, and one has milder consequences for our economy.
You should stop using the word “default” that way. It’s not a default if you or anyone else doesn’t get their SS check.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [October 10, 2013, 7:41pm UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/94 "2013-10-10T19:41:15Z")
But why care what d’em d’er f’erners think about the mighty US of A? Fuck 'em - amiright? I mean what are they actually going to do? Invade us?
No, it would just cause a global financial meltdown that would make Lehman look like a little girl’s tea party for her dollies. But the thing that is overlooked is that you tend to get similar results when people lose confidence in their govt. And when you have millions of people who literally can’t feed themselves and their families because they’ve been cut off at their financial knees, guess what happens.
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### Author:  [@HurricaneDitka](https://boards.straightdope.com/u/HurricaneDitka)
#### Post date: [October 10, 2013, 10:11pm UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/95 "2013-10-10T22:11:26Z")
> [@deltasigma](#):
>
> But why care what d’em d’er f’erners think about the mighty US of A? Fuck 'em - amiright? I mean what are they actually going to do? Invade us?
>
> No, it would just cause a global financial meltdown that would make Lehman look like a little girl’s tea party for her dollies. But the thing that is overlooked is that you tend to get similar results when people lose confidence in their govt. And when you have millions of people who literally can’t feed themselves and their families because they’ve been cut off at their financial knees, guess what happens.
If that’s directed at me, I think you’re wildly off base. I’ve openly acknowledged that it would be a painful and significant loss of service if the debt ceiling isn’t raised. If we’re faced with that option, then I think the best thing we could do would be to ensure that the interest on the debt gets paid. After that, it’s probably a really good idea to continue paying SS beneficiaries and Medicare. After that, you’ll have ~$1T in loose change to do the ~$2T in other things that government used to do. My priorities would include the DoD, and probably not the ATF, EPA, NEA, Head Start, etc. Yours are probably different. I’m confident that there would NOT be millions of starving families even if they used my plan for cutting spending.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [October 10, 2013, 10:24pm UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/96 "2013-10-10T22:24:49Z")
Not really. Your post prompted it but only because it annoys me that people who can see the seriousness of the debt ceiling issue can miss the importance of honoring a social contract (not that I’m putting you in that group). Of course you also have that part of the population that doesn’t even get the debt ceiling part, but then what can you even say about them?
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### Author:  [@Lemur866](https://boards.straightdope.com/u/Lemur866)
#### Post date: [October 10, 2013, 11:11pm UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/97 "2013-10-10T23:11:00Z")
> [@deltasigma](#):
>
> I think I’ve been pretty clear and if people don’t understand that’s unfortunate but it’s not worth the effort to me to attempt any further exposition. Feel free to interpret my resignation however you please.
OK, sparky.
---
### Author:  [@PhillyGuy](https://boards.straightdope.com/u/PhillyGuy)
#### Post date: [October 11, 2013, 1:29am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/98 "2013-10-11T01:29:59Z")
> [@HurricaneDitka](#):
>
> Moody’s doesn’t seem to think it’s a problem. [We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact.](http://www.washingtonpost.com/blogs/post-politics-live/liveblog/live-updates-the-shutdown-4/?hpid=z2#c1e3ada3-dc00-41d8-92cb-327c5c814d82):
Let’s say that a company is still paying off bonds as they come due, but fails to pay 25% of employee salaries and supplier invoices.
Moody’s is going to give that company’s bonds a junk rating. And rightly so.
And it would also be right for them to do that to a government. Sovereign default is not all that unusual, especially in countries without a parliamentary democracy. At first, a government will favor bondholders over ordinary citizens, but this soon becomes quite unpopular. Then voters choose a populist government that will favor the people over big investors.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [October 11, 2013, 1:44am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/99 "2013-10-11T01:44:33Z")
I missed that comment yesterday, sorry. I just read the blog entry and I don’t see a link to the original report so I can’t tell what the context is - it’s most likely proprietary - but I’m guessing what they mean is that a default could probably be postponed past the Oct 17th deadline. Except everyone already realizes that. Nov 1st is probably pretty doable but after that, things get murky and I don’t think people even at the Treasury, let alone Moody’s (the people who, along with S&P and Fitch helped bring us the worst financial crisis in history) have any real idea.
---
### Author:  [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)
#### Post date: [October 12, 2013, 2:29am UTC](https://boards.straightdope.com/t/the-14th-amendment-and-the-debt-ceiling/670739/100 "2013-10-12T02:29:37Z")
> [@Martin\_Hyde](#):
>
> What do you mean by vendor payments? Do you mean people who have already sold the government goods or services and who have outstanding payables?
autocorrect changed “benefit” to “vendor”. Some conservatives have been saying that these benefits are not in jeopardy to reassure people that they are not playing around with people’s social security payments or medicare.
> [@Ravenman](#):
>
> So if the question is whether hitting the debt limit will require the Government to stop paying some bills because there won’t be enough money in the Treasury to pay them, such as paying contractors for something or another, the answer is yes.
Here is our 2012 income: 2.449 trillion
> **[File:U.S. Federal Receipts - FY 2007.png](https://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png)**
>
> Original file (960 × 720 pixels, file size: 92 KB, MIME type: image/png)
>
> Click on a date/time to view the file as it appeared at that time.
> You cannot overwrite this file.
Here is our 2012 spending:
> **[File:U.S. Federal Spending.png](https://en.wikipedia.org/wiki/File:U.S._Federal_Spending_-_FY_2011.png)**
>
> Original file (960 × 720 pixels, file size: 117 KB, MIME type: image/png)
>
> Source data is the CBO Historical tables, excel download.
> Click on a date/time to view the file as it appeared at that time.
Which includes
223BB in Interest
802BB in Medicare/Medicaid
768BB in Social security
461BB in other mandatory
Total: 2.24 trillion
That leave about 300BB for everything from defense to welfare and food stamps to running the courts and prisons.
If we gave it ALL to defense, we would STILL have to cut defense by more than half.
I think that just keeping the most essential functions of government open would cost more than 300BB.
> [@deltasigma](#):
>
> [You also might like this factoid from Morgan Stanley.](http://www.businessinsider.com/can-the-treasury-prioritize-payments-if-the-debt-ceiling-is-breached-2013-10)
☹
> [@Ravenman](#):
>
> So when the United States dismantled its longstanding welfare system in the 1990s, did the country lose its legitimacy? Why or why not?
>
> In my view, there’s no question that some people lost out when welfare basically went away; but that most Americans see the end of that system as increasing their confidence in the government.
I think the people who are likely to have their confidence improved by this sort of thing are also the people who don’t realize that we effectively dismantled welfare.
> [@deltasigma](#):
>
> Where did you get the idea that welfare ‘went away?’ Clinton signed that law and just [changed it to a block grant program](http://en.wikipedia.org/wiki/Welfare#United_States), but nice try.
Welfare no longer exists as we knew it, there is a 5 year cap and all sorts of ongoing requirements to qualify. It was largely replaced by the Earned Income Tax Credit.
> [@Terr](#):
>
> That’s just silly. We were talking about interest payments and debt rollovers because those are what may cause a “default”. That article had nothing to do with that.
There is no sinking fund requirement for service on the national debt. What the charticle seems to be showing is a default on paying debt service on November 15th because we won’t have enough money on hand to pay the interest. So while this pushes out the date of default to the 15th, without an increase int he debt ceiling, there will be a default.
> [@deltasigma](#):
>
> But the point is that programs still exist for people who need them. I know people on those programs. If you really can’t work then you’re entitled to social security. So you see, you’ve completely missed the point - fairness.
We’ve just changed the definition of need. maybe for the better, but we HAVE moved the goalposts on welfare.
> [@Ravenman](#):
>
> You previously argued that Social Security benefits in specific, and social programs in general, can’t be reduced because of a moral obligation. I point out that welfare benefits have been greatly reduced over the last 15 years.
Yes by legislation, not by an inability to pay.
[quote=“HurricaneDitka, post:93, topic:670739”]
That’s the practical difference. One has severe consequences for our economy, and one has milder consequences for our economy.[/COLOR]
They both have serious consequences for our economy. Is like the difference between being shot by an M16 and an AK47. One might cause more tissue damage than the other but your probably dead either way.
> [@HurricaneDitka](#):
>
> If that’s directed at me, I think you’re wildly off base. I’ve openly acknowledged that it would be a painful and significant loss of service if the debt ceiling isn’t raised. If we’re faced with that option, then I think the best thing we could do would be to ensure that the interest on the debt gets paid. After that, it’s probably a really good idea to continue paying SS beneficiaries and Medicare. After that, you’ll have ~$1T in loose change to do the ~$2T in other things that government used to do. My priorities would include the DoD, and probably not the ATF, EPA, NEA, Head Start, etc. Yours are probably different. I’m confident that there would NOT be millions of starving families even if they used my plan for cutting spending.
Using 2012 numbers, you have about 300 billion (after all mandatory spending) to cover what you used to provide with 1.3 trillion. You couldn’t cover half of the DoD with 300 billion never mind keep a functional government in place.
> [@deltasigma](#):
>
> I missed that comment yesterday, sorry. I just read the blog entry and I don’t see a link to the original report so I can’t tell what the context is - it’s most likely proprietary - but I’m guessing what they mean is that a default could probably be postponed past the Oct 17th deadline. Except everyone already realizes that. Nov 1st is probably pretty doable but after that, things get murky and I don’t think people even at the Treasury, let alone Moody’s (the people who, along with S&P and Fitch helped bring us the worst financial crisis in history) have any real idea.
How is November 1st doable? It certainly doesn’t LOOK doable.
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