On the off chance that this does not devolve into a GD.
When we talk about the debt, what exactly is it? Is it a commitment to make certain expenditures like if Congress passes a bill to pay Boeing $4.2B is that in of itself $4.2B of debt to be paid either through future revenue or issuance of Tbills, notes and bonds? Is it the actual security issued viz. T bills, notes and bonds?
Is Congress allowed to give out IOUs? I know California has done this a few times during financial crises when it runs out of money and if the Feds do that without the Treasury issuing the corresponding security, is that debt as well?
Lastly and I know this depends on the definition of debt, what does a default really mean? I know not servicing the debt (interest payments) would count but is simply a commitment to pay through an appropriations bill then saying “We can’t pay you right now.” a default?
Allow me to digress quite a bit and start at the beginning.
There is a Treasury. For the most part, that’s where our Federal taxes go, and when the government pays out a check to someone, that’s where the money comes from.
When the Treasury doesn’t have enough money in it to meet the government’s spending commitments (aka, when there’s a budget deficit), the Constitution says that Congress must pass a bill to authorize the Department of the Treasury to borrow money on the credit of the United States. The Department of the Treasury does this by issuing bonds, which are sold for cash, and the cash makes its way into the Treasury.
(Bonds are also issued for the Social Security Trust Fund: when there are more FICA tax revenues than Social Security benefits paid out, the surplus is required to be used to by US bonds. The SS Trust Fund is actually a collection of those bonds.)
When bonds are authorized by Congress and issued by the Department of the Treasury, they are constitutionally guaranteed to be paid. The sum of these bonds – or loans from people, corporations and countries – is our national debt.
So now our Treasury is full of money generated by taxes and bond sales. Some of that money goes to paying interest on the bonds (aka our debt), some goes to entitlements, and some goes to discretionary programs (like defense, transportation, education, etc). Virtually all the discretionary spending is based on a contract with someone, whether its to pay the salary of a Federal worker or to buy a submarine.
In order for the government to sign a contract for anything, the government must have an appropriation. An appropriation is the authority given by law for the government to spend money. The words “appropriation” and “budget” are often used interchangeably, and they’re almost the same thing.
If the government contracts for something, the value of that thing becomes an “obligation,” not a debt. The obligation is fulfilled when the government pays the person for whatever it was they were supposed to do. Obligations are a legal, contractual requirement for the government to pay someone in the future; but the national debt is a measure of how much money we have borrowed by selling bonds. So, the national debt doesn’t include a calculation the value of an outstanding contract to buy a submarine. The national debt is simply a number representing how much money we’ve raised by selling bonds.
The government is not legally authorized to issue IOUs, where the government could sign a contract to make a promise for future payment even though it doesn’t have an appropriation for something. That’s a violation of the Antideficiency Act. Penalties for committing the government to buy something when there’s no money to put on contract includes up to two years in prison, plus in some circumstances the person who approved that contract could be personally liable for paying the value of the contract. (This is quite the disincentive for a government employee to sign a contract for a $2.5 billion submarine!)
Your final question is what does default mean: in government and finance circles, it means the inability to pay someone back for the bond that they purchased earlier. Default does not mean the inability to pay money owed to an employee or contractor.
What happens if there is a valid contract or benefit that the government is supposed to pay, but literally there is not enough money in the Treasury to satisfy that obligation? The fact is nobody knows, because that has never happened. There are laws and regulations in place for what happens when there is no appropriation for government – that means when there is a government shutdown because the government has no legal authority to make and fulfill contracts (even if the Treasury is full of cash!). But there is no money in the Treasury, there’s no laws, regulations, or guidance to tell anyone how to act - it’s a totally unprecedented situation.
When we talk about the debt, we DON’T mean our commitment to pay our bills. We mean our commitment to repay our loans (as you said: t-bills, notes, bonds, etc). This is pretty much the same as what an ordinary person means when he says, “I’m in debt.” - He doesn’t mean his phone bill and groceries; he means his mortgage and college loans.
You missed a few words there. It’s not “We can’t pay you right now.” Rather, it’s “We can’t pay you right now, and we can’t make any promises about the future either.” And the difference is crucial. The way you phrased it might be a default, but my version clearly is.
Article I, Section 8: “The Congress shall have power… To pay the debts… of the United States; [and] to borrow money on the credit of the United States.”
I think Tom Tildrum’s point is that Art. I Sect. 8 doesn’t require Congress to issue debt but simply allows them to. You used the word “must” which implies Congress has no choice. A strict reading of I,8 wouldn’t bar Congress/Feds to say we’ll pay you when we can.
The 14th Amendment doesn’t mean Congress must issue new debt, it means Congress couldn’t pass a law canceling debt outstanding nor could the President direct the Treasury Secretary to stop making interest payments on the debt.
This is not the place for debate, but there is two centuries of history, law and practice that affirms that Congress must pass a law to borrow money on the credit of the United States.
Plus, there is no basis in any other Constitutional text for another branch of government to exercise any power at all over the debt.
I’m a bit lost here. Surely the Constitution does not require issuance of debt as opposed to raising of taxes or reduction of expenditures? Congress has a variety of fiscal tools at its disposal, and I don’t see that any particular combination carries constitutional weight. As Saint Cad says, on its face, Art. I sec. 8 enumerates powers that Congress may exercise, but does not appear to mandate a particular choice among those powers. And the 14th Amendment, on its face, refers to the repayment of existing debt but says nothing about the issuance of debt.
As a practical matter, if Congress wishes to spend more money than it has raised through taxation, it may have to borrow, simply because the money has to come from somewhere. (Alternatively, I suppose it could just print the money). That’s a financial constraint, though, not a constitutional one.
Just to clarify, I agree with everything else Ravenman wrote – I think it’s an excellent explanation of the difference between a debt and an obligation.
We might have bit talking a little bit past each other. The Constitution does not tell Congress under what circumstances it must exercise its powers with regard to spending, taxes, or debt (with minor exceptions), only that when Congress does choose to exercise them, it has to be in the form of a law.
It’s the difference between:
To raise the debt limit, Congress must pass a law. (Correct.)
Congress must pass a law to raise the debt limit. (Can be read incorrectly.)
Congress is not required to issue *new *debt. But that isn’t the issue here. The controversy is over whether Congress must meet its *current *debt obligations. The answer to that seems to be yes.
So apparently a promise to pay is not debt in the constitutional sense; only the Treasury securities issued to pay money for those obligations is debt. So without raising the debt ceiling, in effect the US is reneging on its promise to pay but it is not in default of any debt - unless it doesn’t redeem the securities because it has no cash.
At least that is my understanding of Ravenman’s definition.