14th Amendment Does Not Prevent Debt Default

by P.A. Madison on July 8th, 2011

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void. —Section 4 of the Fourteenth Amendment

If I understand the argument currently circulating around the web correctly, the debt limit is unconstitutional under §4 of the Fourteenth Amendment because the failure to service (borrow/pay) public debt would bring the validity of it into question. This does not strike me as having any connection with the textual history behind this section.

After the Civil War, there was great apprehension over such things as confederate war claims, rebel debt and concerns over future actions by members of Congress from former rebel States who might endeavor on a strategy to impair the obligations incurred in suppressing the rebellion, such as Union soldier pensions. Such concerns are illustrated in a House resolution by Samuel J. Randall of Pennsylvania on December 5, 1865, where it was approved by a House vote of 162 to 1:

Resolved, (as the sense of this House,) That the public debt created during the late rebellion was contracted upon the faith and honor of the nation; that it is sacred and inviolate, and must and ought to be paid, principal and interest; and that any attempt to repudiate, or in any manner to impair or scale the said debt, should be universally discountenanced by the people, and promptly rejected by Congress if proposed.

This resolution was the foundation for incorporating §4 into the Fourteenth Amendment. When the adopted language of the fourth section cleared the Senate and sent to the House for approval, House and Reconstruction leader, Thaddeus Stevens, described its objective as identical with the above resolution as rendering “inviolable the public debt and repudiates the rebel debt.”

To make a long explanation short, the first sentence of the fourth section commands that no Congress may bring into question the validity of public debt authorized by law with intent to impair it. I doubt a case can be made of defaulting on payment of public debt because of either lack of revenue, a debt limit or, even lack of credit to continue borrowing to pay the debt, raises to the level of willful repudiation against authorized debt. In other words, defaulting on debt payment due to financial considerations is not the same as an act of Congress to repudiate any debt.

UPDATE: More historical background can be found on Jack Balkin’s blog here.

UPDATE: What would be an example of repudiating, or calling into question, the public debt?

A great example would be the State of Mississippi’s $5,000,000 banking bonds issued in 1838. The State could not afford to pay the debt and was unwilling to issue more debt for repayment. This lead to the governor requesting the legislature to call into question the validity of the debt on grounds of “fraud and illegality.” The legislature refused, allowing the bonds to fall into default where they remained for a future legislature to resolve.

UPDATE: Budgetary restraints in servicing debt due to revenue shortages is not the same thing as Congress calling into question the “validity” of any portion of the public debt. Financial difficulties or the desire to repudiate the debt in order to avoid having to make future payouts are two different things.

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Tom
Tom
10 months ago

This is real not that hard. Past congresses have spent more than we have. Not a big surprise given all the trillions going to good causes. This congress is saying we have to cut spending and live within our means. They did not say they would not borrow more money to cover today’s expenses, but we cannot just spend. This means we start to be financially responsible. The idea that we can just keep spending and borrowing money for ever or finding more rich people to tax is crazy. We could probably find the money in just prosecuted the scams and cut waste. The government could be more accountable on what they spend and the results they promise.

mary
11 years ago

So….while the arguments continue, today’s National Debt continues to grow. Show ‘we, the people’ just refuse to pay or should we allow the USA to declare bankruptcy. Simple Answer: don’t use money that’s not yours!

Keith
Keith
12 years ago

Budgetary restraints in servicing debt due to revenue shortages is not the same thing as Congress calling into question the “validity” of any portion of the public debt. Financial difficulties or the desire to repudiate the debt in order to avoid having to make future payouts are two different things.

This is the most logical conclusion of the section I’ve been able to find.

Vickie-1790580
Vickie-1790580
12 years ago

What do you call it if something needs to be done, but the people that can accomplish this will not, unless you give them anything and everything they want?

faylah brogan
faylah brogan
12 years ago

@Jaybird:

Congress should pay SS, Medicare, and the veterans. Thats all. Later go back and pay what is absolutely necessary, interst on loan to china

Neil
Neil
12 years ago

This analysis appears to be the best logical one to date.

Tim Waters
Tim Waters
12 years ago

I agree with Madison’s excellent observation here.

Ross Hetrick
12 years ago

The explanation doesn’t hold water. The Federal Government is completely able to service the debt now and is obligated to pay the debt under the 14th amendment. The debt ceiling is completely artificial and has no bearing on the ability of the federal government to pay the debt. Raising the debt limit does add revenue or change the credit of the federal government. Refusing to raise it is simply a Republican ploy to blackmail the country. The fourth section of the Fourteenth Amendment was enacted to keep the Confederates from disavowing the federal debt and it will serve the same purpose against the Republicans.

Pete
Pete
12 years ago

Lack of funds does not disavow the debt. What happens when the Chinese no longer want to purchase risky US debt? Will the US use the 14A as rational to invade weak countries to rob them of gold and anything else they can turn into cash because the 14A says the US must pay the debt no matter what? I think your explanation is what doesn’t hold water.

Ross Hetrick
12 years ago

We do not lack the funds to pay the debt. Our credit is still good and we can sell bonds to service the debt. Now if the Chinese or other creditors would not buy our bonds, that would be a different case. But that is unlikely to happen. The bonds still have a AAA rating and even if that rating dropped, creditors would still buy the bonds. We would just have to pay higher interest rates. Now, if the Republicans are successful in defaulting on the debt, that could severely hurt our credit rating and possibly reek havoc in the credit markets. So in conclusion, we have the funds to pay the debt and the failure of the Republicans not to raise the debt limit would be a willful repudiation of authorized debt and is thus a violation of the fourth section of the 14th Amendment.

JimAZtec
JimAZtec
12 years ago

So in conclusion, we have the funds to pay the debt and the failure of the Republicans not to raise the debt limit would be a willful repudiation of authorized debt and is thus a violation of the fourth section of the 14th Amendment.

Refusing to raise the debt or unable to afford additional borrowing is not the same as repudiating the debt. Failure to pay a debt because of finances has never been held to repudiate the debt. Instead, it’s default of payment with principle and interest still due and payable. All you are doing here is making political rationals.

The inability to pay or finance a new car for your daughter does not automatically repudiate your daughter.

athEIst
athEIst
12 years ago

Ross, be rational and look up rational adj.

rationale noun

Ross Hetrick
12 years ago

I made myself very clear in my last message. You just don’t want to accept the facts. “There are none so blind who will not see.”

Ross Hetrick
12 years ago

You don’t seem to understand the situation. The federal government has already incurred these debts by the actions of past Congresses. Not to pay them now would be to repudiate them. To use your analogy, if you bought your daughter a car with a loan and then refused to pay the loan, you would be repudiating the loan. I hope that clarifies the situation for you.

Jaybird
Jaybird
12 years ago

I agree with Paul Madison that a default is not the same as an act to discharge debt. Some people will argue it will damage national credit to default but credit is being damaged with continued borrowing to make up for massive budget deficits. Continued borrowing always leads to default eventually and likely will lead to real repudiation of public (partisan) debt because there is no other alternative when there are no more bond buyers who have large enough funds to keep the Federal Monster financed.

Jaybird
Jaybird
12 years ago

“To use your analogy, if you bought your daughter a car with a loan and then refused to pay the loan, you would be repudiating the loan. I hope that clarifies the situation for you.”

No that would not be repudiating the loan – it would be a loan default with principal and interest still payable. Only an act of a bankruptcy court can repudiate the loan/debt.

Ross Hetrick
12 years ago

You are confused about the words. You can repudiate a debt by simply not paying it. Here’s a link to the definition: http://www.thefreedictionary.com/repudiate You can only “discharge” a debt through bankruptcy.

Jaybird
Jaybird
12 years ago

Ross Hetrick wrote: You can repudiate a debt by simply not paying it.

How would you know if the intent is to repudiate the debt or simply unable to make payment with the intent to honor the debt? If the intent is not to repudiate the debt then some sort of future payment can be achieved. If the intent is to repudiate the debt then future repayment or claims is lost.

This is why repudiation requires some official act of Congress to make that intent known so parties know where they stand.

JimAZtec
JimAZtec
12 years ago
Reply to  Jaybird

+1

DonM
DonM
12 years ago

In the short term the US should pay the debt payments first as a matter of policy to keep interest rates from increasing to cover the cost of risk in addition to the cost of money.

In the medium term, The US should adjust SS and Medicare so that less money is promised in the future. One way this can happen is to ‘means test’ payments, treating SS and Medicare as a welfare benefit, rather than as an entitlement. Another way is to increase the age for benefits. Both will have to be done. The current system is that bad, and the government has squandered all the prior payments. There is no trust fund. It is all gone.

In the long term the government will have to shrink by at least 50%. Tax rate increases will not increase revenue because people will change their behavior to avoid the tax. One way to do this is to privatize SS and Medicare, with younger people able to chose some decreased degree of coverage, with the required degree of coverage decreasing over time to zero. The longer we wait to shrink the government, the greater the contraction will eventually be.

Jordan
12 years ago

This sounds like a distinction without a difference. Congress could hold a formal vote repudiating or “calling into question” the public debt, and that would clearly violate the 14th Am.

But if Congress merely declines to raise enough money, either through taxation or sale of assets, further debt, or, heck, inflationary money policy, and so defaults on the debt, the effect is exactly the same whether Congress formally says “We repudiate this debt.”

The clear intent of the 14th Am. was to prevent future Congresses from stiffing veterans and bondholders who’d helped the Union win the war. For any reason, whether through formal repudiation, bankruptcy-style discharge, or simple lack of appropriations.

The Amendment doesn’t say “Oh, and by the way, if you decide to spend the money on other things, don’t worry about it. We only care about the language used.”

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