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>>> WELCOME TO ""THE JOURNAL
EDITORIAL REPORT."
I'M PAUL GIGOT.
WELL, WITH OCTOBER 17th FAST
APPROACHING, BOTH SIDES ARE
SCRAMBLING TO REACH AT LEAST A
SHORT-TERM DEAL TO RAISE THE
FEDERAL GOVERNMENT'S BORROWING
LIMIT.
PRESIDENT OBAMA THIS WEEK
PAINTED A BLEAK PICTURE SHOULD
CONGRESS FAIL TO REACH AN
AGREEMENT ON THE DEBT CEILING
BEFORE THURSDAY'S DEADLINE.
>> IF CONGRESS REFUSES TO RAISE
WHAT'S CALLED THE DEBT CEILING,
AMERICA WOULD NOT BE ABLE TO
MEET ALL OF OUR FINANCIAL
OBLIGATIONS FOR THE FIRST TIME
IN 225 YEARS.
NOBODY IN THE PAST HAS EVER
SERIOUSLY THREATENED TO BREACH
THE DEBT CEILING UNTIL THE LAST
TWO YEARS.
AND THIS IS THE CREDIT
WORTHINESS OF THE UNITED STATES
THAT WE'RE TALKING ABOUT.
THIS IS OUR WORD.
THIS IS OUR GOOD NAME.
THIS IS REAL.
>> BUT THANKS TO THE 14th
AMENDMENT, CONSTITUTIONAL
ATTORNEY DAVID RIVKIN SAYS THE
DEFAULT ON THE FEDERAL DEBT IS
NOT EVEN A POSSIBILITY.
I SPOKE WITH HIM EARLIER AND
ASKED HIM WHY.
>> THE UNITED STATES IS THE ONLY
COUNTRY THAT IS CONSTITUTIONALLY
INCAPABLE OF DEFAULT.
14th AMENDMENT SAYS SPECIFICALLY
THE PUBLIC DEBT OF THE UNITED
STATES AUTHORIZED BY LAW CANNOT
BE QUESTIONED.
THE SUPREME COURT OF THE UNITED
STATES CONSTRUED THIS LANGUAGE
IN 1935 AND MADE VERY CLEAR THAT
THIS LANGUAGE IS TRADITIONALLY
ENFORCEABLE, SO INDIVIDUALS WHO
HOLD BONDS AND OTHER OBLIGATIONS
OF THE UNITED STATES, IF THE
UNITED STATES MISSES PRINCIPLE
INTEREST PAYMENT, YOU CAN GO
OVER TO THE FEDERAL COURT OF
CLAIMS AND GET A MONEY JUDGMENT
AGAINST THE UNITED STATES.
IT'S NOT DEBATABLE.
>> ALL RIGHT.
THAT WAS THE LAST CASE THE
SUPREME COURT HEARD ON THIS
QUESTION.
>> WELL, EXCEPT THE 1960 CASE
CALLED NESTER V. FLEMING, THE
COURT MADE CLEAR, PAUL, THAT IT
ONLY APPLIED TO TRUE PUBLIC
DEBT, THAT OTHER OBLIGATIONS OF
THE UNITED STATES ARE NOT
SIMILARLY PROTECTED.
>> PARTICULARLY, SOCIAL SECURITY
PAYMENTS OR THINGS LIKE THAT.
BUT DAVID, WHEN I WAS IN SCHOOL,
I WAS ALWAYS TAUGHT THAT
CONGRESS HAS THE SOLE POWER
UNDER THE CONSTITUTION TO
APPROPRIATE MONEY.
WOULDN'T THIS INTERPRETATION OF
THE 14th AMENDMENT GIVE THE
PRESIDENT THE OPPORTUNITY,
ESSENTIALLY, TO SPEND MONEY NOT
APPROPRIATED BY CONGRESS?
>> IT WOULD NOT, PAUL, FOR A
COUPLE REASONS.
FIRST, AS A PRACTICAL MATTER,
THERE'S MORE THAN ENOUGH MONEY
IN THE TREASURY FROM TA
RECEIPTS TO PAY DEBT SERVICE.
$200-PLUS BILLION IN RECEIPTS,
ROUGHLY $30 BILLION IN DEBT
SERVICE.
>> RIGHT.
>> SECOND, THIS LANGUAGE IS A
LIMITATION ON WHAT POLITICAL
BRANCHS CAN DO RELATIVE TO
REPUDIAING EXISTING DEBTS.
IT IS NOT A LANGUAGE THAT GRANTS
THE PRESIDENT ANY POWER TO COME
UP WITH OTHER SOURCES OF
REVENUE.
DEBT POWER IS VERY MUCH IN
ARTICLE ONE.
>> JUST TO BE CLEAR, THIS WOULD
NOT BE A PRECEDENT FOR THE
PRESIDENT TO SAY, YOU KNOW WHAT,
I CAN NOW TAKE THAT TAX REVENUE
THAT YOU SAY THERE'S PLENTY OF
AND SPEND IT ON SOCIAL SECURITY
PAYMENTS, ON MEDICARE PAYMENTS,
OR THE EDUCATION DEPARTMENT, OR
WHATEVER HE WANTED TO.
THIS WOULD ONLY APPLY TO DEBT
INTEREST PAYMENTS, IS THAT
CORRECT?
>> AND PRINCIPLE, ABSOLUTELY.
IT APPLIES TO TRUE PUBLIC DEBT.
AND IF YOU THINK ABOUT IT FOR A
SECOND, AND THIS IS WHAT THE
SUPREME COURT SAID IN NESTER V.
FLEMING.
OTHER OBLIGATIONS, OTHER
PROMISES, ARE NOT
CONSTITUTIONALLY PROTECTED.
OTHERWISE YOU HAVE A ONE-WAY
RATCHET, PAUL.
CONGRESS CAN NEVER DECREASE
SOCIAL SECURITY PAYMENTS, CAN
NEVER CHANGE ALL THE OTHER
FEDERAL OBLIGATIONS, BUT
REMEMBER THIS IS THE MOST
IMPORTANT THING.
THIS IS, TO ME, UTTERLY SPEAKS
LANGUAGE ABOUT WHAT DEFAULT IS.
THIS IS NOT ABOUT OTHER
PAYMENTS, IT'S ABOUT THE
OBLIGATIONS OF THE UNITED STATES
HELD BY THIRD PARTIES.
>> HONORING CONTRACTS FOR TEA
BILLS, TREASURY NOTES, THAT SORT
OF THING THAT ARE A FORM OF
CONTRACT.
THAT'S WHAT IT BASICALLY
ENFORCES.
WOULD IT ALLOW THE PRESIDENT TO
ROLL OVER DEBT AND ISSUE NEW
DEBT?
>> ONLY -- WELL, NOT ISSUE NEW
DEBT, BUT MEETING PAYMENTS.
IT IMPLIES YOU PAY OFF OLD DEBT
AND INCUR NEW DEBT.
ONE-HALF OF A TRANSACTION, PAUL,
WOULD BE ALLOWED.
YOU DO HAVE TO PAY THE
PRINCIPLE, BUT NOT INCUR NEW
DEBT WITHOUT CONGRESSIONAL
BLESSING, THE POWER TO BORROW
MONEY IN THE UNITED STATES UNDER
ARTICLE ONE, SECTION EIGHT,
BELONGS TO CONGRESS AND CONGRESS
ONLY.
>> AS YOU KNOW, AS IN ALL LEGAL
QUESTIONS, THERE'S A DISPUTE.
NOT EVERYBODY AGREES WITH YOU,
INCLUDING THE ADMINISTRATION,
SECRETARY TREASURY JACK LEW AND
THE WHITE HOUSE SPOKESMAN JAY
CARNEY BOTH SAY WE DON'T AGREE
WITH THIS INTERPRETATION OF THE
14th AMENDMENT.
WHAT HAPPENS IF THEY WOULD SAY
WE DON'T AGREE WITH THAT, SO WE
ARE NOT GOING TO MEET OUR
INTEREST PAYMENTS IF THE DEBT
LIMIT IS BREACHED?
>> TWO ANSWERS.
FIRST OF ALL, THEY HAVE BEEN
VERY CAREFUL ABOUT IT.
I WOULD BET YOU A LOT THAT IF
YOU GO TO SOME LEGAL COUNCIL,
THE JUSTICE DEPARTMENT OR
PRESIDENT'S LAWYERS AND ASK FOR
THEIR OPINION IN LIGHT OF A
SECTION FOUR OR HOW IT WAS
DRAFTED AND THE SUPREME COURT
CASE LAW I'M TALKING ABOUT, THEY
WOULD NOT SAY THAT THAT IS NOT
THE CASE, SO THE WHITE HOUSE IS
TRAILING THE FENCE.
BUT SECOND, WHAT'S STUNNING TO
ME, THINK ABOUT HOW UNUSUAL IT
IS.
PRIME MINISTERS OF GREECE,
ITALY, SPAIN, COUNTRIES WITH
REALLY, REALLY BAD DEBT PROBLEMS
ALWAYS TALK UP THEIR DEBT, THEIR
CREDIT WORTHINESS.
WE SEEM TO BE THE ONLY COUNTRY
POLITICAL LEADERS ARE TALKING
DOWN CREDIT WORTHINESS.
THAT'S UNTHINKABLE.
>> YOU THINK THEY ARE DOING THAT
FOR POLITICAL REASONS TO GIVE
THEMSELVES MAXIMUM LEVERAGE AND
BOX IN THE REPUBLICANS.
>> ABSOLUTELY.
AND PARTICULARLY TO USE THE
BUSINESS COMMUNITY AND WALL
STREET TO PRESSURE THE WHITE
HOUSE.
LET ME SAY BRIEFLY, THE TRUE
SIGNIFICANCE, AS FAR AS I'M
CONCERNED OF THIS CRISIS, IS NOT
THE FAILURE TO PAY PUBLIC DEBT,
BUT 40% SEQUESTER BECAUSE WE'RE
BORROWING 40 CENTS ON THE
DOLLAR.
THAT WOULD BE VERY BAD, BUT IT'S
NOT ABOUT DISHONORING PUBLIC
DEBTS OF THE UNITED STATES.
>> AND THE WHITE HOUSE KNOWS
THIS.
BASICALLY, IF YOU GOT TO THE END
AND THERE WAS A QUESTION OF
BREACHING THE DEBT LIMIT, YOU
THINK THEY WOULD GO WITH YOU AND
INVOKING THE 14th AMENDMENT?
>> I THINK THEY WOULD HAVE TO GO
WITH ME.
ONE LAST POINT, I HEARD AN
ARGUMENT MADE THAT SOMEHOW
TREASURY IS SUCH A CLUMSY BEAST
THEY CANNOT PRIORITIZE THE
PAYMENT.
I FIND IT STUNNING.