Can Obama Ultimately Ignore the Debt Ceiling?

The debt ceiling negotiations with Vice President Biden and key Republican negotiators broke down last week. These negotiations have been going on for some time now and are the result of the last Debt Ceiling bill passed in February, 2010 and the massive government spending that has taken place since then. Just for the record, the current debt ceiling amount is $14.294 Trillion and we have already gone well past that amount. According to Treasury Secretary Geithner, the real drop dead date for a new debt ceiling bill is August 2, 2011 when the United States may have to default on its government debt.

This is all very interesting and makes for great news in the press and the media. As we approach the fateful date, watch out for the mainstream media to start predicting financial Armageddon if the Republicans don’t knuckle under to Obama and cave in on his terms for a new debt ceiling increase.

I have another scenario that is starting to be discussed in some media outlets. It is the startling suggestion that the president may very well ignore the current debt ceiling law and basically thumb his nose at Congress. What did you say! The president actually might disobey a law from Congress?

Will Obama Ignore the Current Debt Ceiling Law?

Well, for starters, he already has ignored the law. The current law called for a debt ceiling of $14.294 Trillion, and that figure was exceeded some time ago in May of 2011. However, there is a far greater reason that Obama could give for ignoring the debt ceiling. That reason is that Congress, through a string of laws, appropriation bills and continuing resolutions, has already approved all of the current expenditures of the federal government. In order for Obama to obey the current set of Congressional laws, which he and other presidents have signed, he must go on spending money. If the government doesn’t have the money, then they have to borrow it, either on the open market or from the Federal Reserve (when the government borrows from the Fed, basically they are just creating the money out of thin air). So, what you have are two conflicting set of laws from Congress and Obama must choose to obey one or the other. What do you think Obama will do? Keep spending or shut parts of the government down?

Can Anyone Legally Challenge Obama if He Ignores the Debt Ceiling Law?

The short answer is no. In order to challenge the president and the federal government, one must have standing in a federal court. The plaintiff needs to show that he or she has been damaged in some way. On a number of occasions, members of Congress have tried to sue the president and have failed in their endeavors. Invariably it comes down to a question of standing, but even if that issue was overcome there is still a Constitutional requirement that “the Government cannot legally default on its debts”. Section 4 of the 14th Amendment states “The validity of the public debt of the United States, authorized by law, including debts incurred for payments of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned”. There is a more complete explanation of this whole issue in an article written in the New Republic entitled “The Debt Ceiling: Why Obama Should Just Ignore It”.

What Happens as the August 2 Date Approaches?

I fully expect Obama to negotiate very hard with House Speaker John Boehner. I do not believe that he will surrender much of his spending program and will continue to insist on tax increases as part of an overall settlement. At some point, I think he will present Boehner with an ultimatum – either agree to his (Obama’s) terms or Obama will take the route of ignoring the current debt ceiling law.

My best guess at this time is that Boehner will cave in and accept the president’s terms. He doesn’t have enough Republican votes in the House to accept a presidential ultimatum on the debt ceiling bill which falls far short of what most Republicans want. These Republican votes will be replaced with Democrat votes delivered by Nancy Pelosi. The compromise will pass and the Republicans in Congress will be finished.

There is an alternative scenario which could happen. Boehner realizes that he can oppose the president, marshal all of his Republicans into opposition and let the debt ceiling bill on Aug. 2 fail. Obama will certainly try to blame the Republicans for all of the terrible events that he says will come to pass. I doubt this blame game will work and Obama will be severely tested on the massive debt situation facing the nation in the 2012 election. I believe this could become a winning issue for Republicans.

So the questions remain:

  • Will Obama actually ignore the debt ceiling and keep on spending?
  • Will Boehner cave in, accept Obama’s terms and urge his House Republicans raise the debt ceiling without any significant spending cuts? 
  • Will Boehner resist Obama’s threats and hold firm against any new debt ceiling legislation?

There are interesting days ahead.

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