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Can Biden Avoid Bankruptcy Through Amendment 14?

2023-05-09 08:30:00, Kosova & Bota CNA

Can Biden Avoid Bankruptcy Through Amendment 14?

Illustrative photo

The American President, Joe Biden, has called the leaders of the American Congress to a meeting on May 9 to discuss the increase in the debt ceiling.

The US Congress is divided and running out of time to raise the federal government's $31.4 trillion debt ceiling, with the Treasury Department warning it could run out of money by June 1.

If Congress fails to act, some experts say President Biden may have one more option to avert the crisis: use the 14th Amendment to the US Constitution to make sure the US keeps paying the bills.

What does the 14th Amendment say?

Article four of the 14th Amendment, enacted after the Civil War of 1861-1865, states that "the validity of the public debt of the United States...shall not be questioned."

Historians say this amendment was intended to ensure that the federal government would not default on its debts, as some former confederations had done.

But this clause has largely not been addressed by the courts, and legal experts disagree on what it requires of Congress and the Presidency.

Some, like Cornell University law professor Michael Dorf, say the "less unconstitutional" option would be for Biden to act on his own to protect the integrity of the national debt.

"This means borrowing money," he said. Any action Biden might take is likely to prompt the initiation of legal proceedings.

Who can sue for the debt ceiling?

It is not clear who would be able to bring such a legal case. It can be difficult for any plaintiff to prove that they have been harmed by an action.

A 1997 US Supreme Court ruling said individual lawmakers could not initiate such lawsuits, but Congress could potentially vote to say it was harmed collectively.

The Supreme Court may also choose to hear a legal challenge in order to quickly resolve the issue, as it did with Biden's decision to cancel $430 billion in student debt.

But such a case would be in untrodden legal territory.

The Supreme Court has only ruled on the Public Debt Clause once, when in 1935 it challenged Democratic President Franklin Roosevelt's decision to take the U.S. off the gold standard [a system where states set the value of their national currencies based on of a specific amount of gold]. The court had ruled that the plaintiff, an owner of the securities, had no basis to raise such a legal issue.

Biden and Congress, meanwhile, will be under enormous pressure to resolve the issue as quickly as they can, which means any legal case could become moot even before it reaches a court.

What is the White House's position on the 14th Amendment?

The last time this issue came up in Washington was in 2011 and 2013, when top Democratic officials, including former President Bill Clinton, called on then-President Barack Obama to invoke the 14th Amendment. But House advisers The Whites had argued that they did not believe they had the legal authority to do so.

US Treasury Secretary Janet Yellen had stated in 2021 that using Amendment 14 was not an option, and that some of former President Obama's advisers, such as Gene Sperling, now work in the White House in the Biden administration.

White House spokesmen did not respond to requests for comment on the matter.

How would the markets react if Biden used the 14th Amendment?

Administration officials and economists have warned that a default triggered by exceeding the debt ceiling would shake the financial system and plunge the US into recession.

This disastrous outcome could be avoided if Biden used the 14th Amendment.

However, investors could be spooked by all that drama and demand higher interest rates, which would reflect increased risk until the legal ambiguities are resolved.

"That's a pretty big risk that the president would take," said Mark Zandi, chief economist at Moody Analytics. "But maybe this is the best option for him if you get into that scenario"./ Rel