The U.S. debt ceiling debate has become a high drama.
Around August 4 or 5, the country will be required to make an interest payment of more than $30 billion on the nation’s $14.3 trillion debt. The problem is Uncle Sam is, for all practical purposes out of money. Ordinarily that would be a ho-hum event, because the country would simply sell some new bonds to raise the cash to pay the older debts coming due. It’s called the “national debt” and it is secured by “the full faith and credit of the United States.” In other words, as long as there is a USA, holders of U.S. bonds will eventually get paid.
The only problem is that now, the government has no legal authority to borrow any money above the already reached debt ceiling, without the approval of Congress. Usually Congress raises the debt ceiling and the country remains solvent, because the federal government–which prints the currency, which incidentally is used as the standard medium of exchange to pay for oil and most other international transactions–because the federal government says the country is solvent.
On the boulevard, that’s called a “Ponzi scheme,” in honor of one Charles Ponzi.Â He became filthy rich in and around Boston in 1920 with a type of plan selling paper securities to investors whom he had promised enormous profits. Ponzi was at one time making $250,000 a day by repaying early investors what he promised them from the investments of later investors. But since Ponzi could not print his own money like the U.S. Treaury, the scheme imploded on itself.
Now here we are, 91 years later. President Obama scolded lawmakers in no uncertain terms June 29 telling reporters that he expects Congress to deliver a compromise deal to raise the nation’s debt ceiling.
Republicans, it seems, believe that all governments are too big, and that free markets should determine the outcome of day-to-day life everywhere, and that government programs like unemployment compensation make folks without jobs lazy and content to not work; that entitlement programs like Social Security and Medicare have become too expensive, and that they should be drastically scaled back in order to balance the books and stop incurring more debt.
Pres. Obama said he wants to close loopholes in the tax code and eliminate subsidies that favor the wealthy or large corporations. Republicans say: “No way.”
“If you’re a wealthy CEO or hedge fund (Ponzi scheme, my analysis) manager in America right now your taxes are lower than they have ever been,” Obama said. “They’re lower than they’ve been since the 1950s, and you can afford it. You’ll still be able to ride on your corporate jet. You just have to pay a little more. It would be nice if we could keep every tax break there is. But we’ve got to make tough choices here to reduce our deficit,” he said.
“But history tells us that (President Obama) does this talking and then he concedes,” Dr. Wilmer Leon,assistant professor of political science at Howard University told me. “You know, he finds a way to roll over.”
But there is a bit of Constitutional flim-flam the President might invoke, without rolling over Dr. Leon predicted. Obama, he said, may have an obscure Constitutional maneuver which he can utilize to forestall the default. “One of the things that I have to look at, is Section 4 of the 14th Amendment, which talks about validity of the public debt. Some are telling me that the President, through executive order can do this himself, and that Section 4 of the 14th Amendment gives him the ability to do it.”
The first sentence of Section 4 of the 14th Amendment, which was adopted at the end of the Civil War, reads: “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.” Wow!
“So basically, what people are saying is, that the President is being incredibly cagey and strategic, in not playing this trump card, and that he’s trying to extract as much pain as he can from the Republicans, and then at the last moment, he could, via executive order, Section 4 of the 14th Amendment, just say, ‘I’m raising the debt ceiling and this is what allows me to do so,'” said Dr. Leon.
That’s smart. We’ll have to wait to see if the Prez pulls this Ace from his sleeve.