If there is no increase in the debt ceiling by August 2, then the Treasury will not have enough money to meet all its commitments without borrowing more money, which it will not be able to do without breaking a wartime law from 1917 that created the debt ceiling.
But it is also bound by laws that tell it to make various payments, including the latest appropriations act passed by Congress in the spring, as well as an apparent instruction in the constitution to keep paying US debts.
The 14th amendment, adopted in 1868, says that “the validity of the public debt of the United States ... shall not be questioned”.
The purpose of the clause – originally formed to settle any doubt that the US would pay debts it incurred during the civil war – was tested in a Supreme Court case after the US left the gold standard to fight the Great Depression in 1933.
The court said that Congress could not tear up its promise to bondholders to pay them in gold and interpreted the 14th amendment as applying to “whatever concerns the integrity of the public obligations”.
“The Supreme Court, citing the 14th amendment among other law, has made it clear that Congress does not have the power to alter its own contracts,” said Michael Bradfield, former general counsel of the Federal Reserve Board and author of a memorandum being circulated among Capitol Hill staffers looking to bypass a congressional vote on the debt ceiling.
By that logic, Mr Bradfield said, “if an impasse were to occur, the legal case for invoking the 14th Amendment would be very strong”.
[read on at link:
http://www.ft.com/cms/s/0/f9ae9aa0-b92b-11e0-bd87-00144feabdc0.html#ixzz1TVXBqbS6]
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