Archives for posts with tag: debt limit

The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) may not be more than $14,294,000,000,000, outstanding at one time, subject to changes periodically made in that amount as provided by law through the congressional budget process described in Rule XLIX [1] of the Rules of the House of Representatives or as provided by section 3101A or otherwise.

31 U.S.C. § 3101(b)[1]

[OK, this is Larry and I’m back again to discuss yet another way our government might fall apart. You’re familiar, no doubt with what happens when Congress fails to appropriate money to fund one or more government activities. People have to go home. It was decided way back in the Carter Administration[2] that government employees who went to work when there were no appropriations, but weren’t “essential” to protect life or property, quite likely were committing a criminal act. What’s the crime? Why, violating the “Anti-Deficiency Act,[3]” i.e., the statute that prohibits federal employees from obligating the government to spend money when they don’t have the authority to do so. That’s what “appropriations” are: the authority to financially obligate the government.

You see, when federal employees go to work they’re automatically entitled to be paid for their time. So just by showing up they obligate the government to pay them, even when the government has no authority – no appropriations -to do so. Well, couldn’t an employee offer to work for free for a day or two, just to keep things running? No, says our government; federal employees have no authority to waive their right to be paid.[4] So they have to stay home, unless they protect life or property.

So when was that last a problem? No doubt you remember: It was 4 years ago, back when we faced a “fiscal cliff.” The “cliff” was that there were no appropriations for a time to support some government operations, and some government folks had to stay home. You’ll be happy to know that we don’t have the same situation this month. Appropriations are in place, for the most part[5]; but now we have a different problem. The problem is, when the bills come due, we [the United States] may not have the cash to pay them.]

Burgeoning Debt

How could that be? Well, because the U.S. runs a deficit every year; while it collects lots of taxes and has other revenues, it doesn’t collect enough to pay all the bills. The U.S. funds its yearly deficit by borrowing on the Treasury market. Unfortunately Congress has limited the total amount the U.S. can borrow; you can find that in the quote that begins this piece; and, once again, we’re approaching the ceiling.[6] By the way, the current ceiling isn’t $14.3 trillion; it’s higher, due to subsequent adjustments. The Treasury keeps track of these sorts of things.[7]

So what is Congress to do? Raise it again? And if so, will there ever be a point at which we can stop doing that?[8] What happens if eventually there’s just too much debt out there? When will we know that’s the case?

That’s what the argument is about. The issue was kicked over to the “Government Accountability Office” back in 2010 which, of course, duly issued a report. The GAO’s basic opinion was that the debt limit doesn’t restrict Congress’ ability to authorize spending at any level. Instead, it restricts the Treasury’s ability to pay the inevitable bills.[9] That is, it creates a series of crises followed by successive increases in the ceiling. “Meanwhile,” GAO said, its “long-term simulations show that absent policy changes, federal debt will increase continually over the next several decades.”[10]

Debt Default

So here we are, approaching the ceiling again. Perhaps it’s time to start thinking about the unthinkable. What happens if the U.S. simply doesn’t pay all of its bills? Well, that’s not a new idea. The Treasury is adamantly opposed to that kind of thing. It says: “Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history. That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the 2008 recession.”[11]

That’s the current position of the Trump Administration, but it’s not very much different from that of its predecessors. Why do all these people reach the same conclusion? Well, at bottom it’s because they’re convinced that, if the U.S. defaults an any debt payments, of any type, that ultimately would reflect on our national credit rating – which currently is very good – causing it to be downgraded, and thereby raise the interest rate we might have to pay for future borrowings.

That wouldn’t be a problem, I suppose, if we ran a budget surplus; but we don’t; we need to borrow lots every year; and rising interest rates will simply add to the amount we borrow. I don’t know if that would lead to “another financial crisis;” it’s said that we’ve never defaulted before, so who really knows? But rising interest rates can’t be a good thing for any debtor who has to go back to his [or her] lenders.

Prioritize Payments?

So are there other options? Well, Congress thought of some. There’s the notion, for example, that perhaps we ought to stick with the current debt limit, and simply prioritize our payments according to what’s important to us. Like the middle-class person strapped for cash, we might skip the electric bill for a month and pay the car loan, or vice versa. In truth a proposal sort of like this passed the House a couple of years ago[12]. [As near as I can tell, it never made it through the Senate.] It basically exempted from the debt ceiling all principle and interest payments due on bonds (a) held by the public, or by (b) the Social Security Trust Funds. All other payments would be curtailed.[13]

The bill is interesting – especially to someone on Social Security – but all such attempts to prioritize debt payments were [and apparently are] opposed by the Treasury. In May of 2011 it said: “Adopting a policy that payments to investors should take precedence over other U.S. legal obligations would merely be default by another name, since the world would recognize it as a failure by the United States to stand behind its commitments.”[14] No doubt the same could be said about an attempt to give preference to payments under Social Security.

Coin More Money

Or perhaps Congress already has resolved the problem a different way. Four years ago we pointed out that, in addition to appropriating funds and incurring debt, Congress has the power to coin money. And, according to The Washington Post, Congress may have given one bureaucrat the power to solve our problem with the debt limit.[15]

It seems that the Treasury Secretary has authority “notwithstanding any other provision of law,” to “mint and issue platinum coins in such quantity and of such variety as the Secretary determines to be appropriate.”[16] So, problem solved: All the Treasury has to do is mint up a few such coins in the $ 1 trillion denomination, deposit them wherever it keeps valuables (perhaps in Fort Knox[17]), and offset that amount from our outstanding debt. Presto! Federal net debt lowered well below the statutory ceiling.

We’ve said this before, by the way, but not seriously. Other countries have tried to print money to get out of a fix, but haven’t had very good results.[18] No doubt we’d have the same experience if we did the same thing.


Sometimes I wonder if, centuries from now, future archeologists, combing through the rubble of the Great American Empire, will stop to wonder what happened, why that Great Thing eventually collapsed. Will they find we had a deadly plague, or a series of them; or a great famine, due to global warming; or a series of violent, destructive wars? Or will it be something much simpler than that. Will they find, perhaps, that we failed because we had an accounting problem, and just couldn’t control our money?

I have no idea. What do you think?




[1] This language appears in Title 31, Money and Finance, Subchapter III, Financial  Management, Chapter 31, Public Debt. The official online version of this part of the U.S. Code is available from the Government Publishing Office at    If you would rather try an unofficial, but reliable version, try the Cornell Law School, at

[2] James Earl Carter was President of these United States from January, 1977 through January, 1981. See the Wikipedia entry at  . That’s also when the Iranians threw out their Shah and went with the theocracy they have today. Some say the current government of Iran doesn’t like us because we supported the Shah, and sold him lots of weapons, and perhaps helped him gain power in the first place.  This blog is not about that.

[3] For a non-technical discussion, see Time, Nicks, The Man Who Invented the Government Shutdown (Oct. 09, 2013), available at

[4] Id. We’re looking for a copy of the old Civiletti opinion. If we find it, we’ll publish it in a later blog.

[5] Actually, that’s what I think, but I haven’t researched the matter, so I’m not offering an opinion as to whether there are appropriations currently in place to cover all government functions, or whether they are adequate for their untended purposes. That’s not what we’re discussing today.

[6] See  GAO 11-203, Debt Limit, Delays Create Debt Management Challenges and Increase Uncertainty in the Treasury Market (February 11, 2011), available at . This will be cited as “GAO -11-203 at __.”

[7] See Treasury, Debt Limit, at ; Treasury, Monthly Statement of The Public Debt of the United States (March 31, 2017), at . Today the authorized debt limit, for publicly held securities and intergovernmental securities, is close to $20 trillion. The limit on publicly held debt remains at around $14.4 trillion.

[8] See GAO -11-203 at What GAO Found:The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred.”

[9] See GAO-11-203 at p. 1: “The debt limit does not restrict Congress’ ability to enact spending and revenue legislation that affect the level of debt or otherwise constrain fiscal policy; it restricts the Department of the Treasury’s … authority to borrow to finance the decisions enacted by the Congress and the President.”

[10] Id.

[11] See U.S. Treasury, Debt Limit, Myth v. Fact, available at

[12] See House Report No. 113-48, Full Faith and Credit Act, available at

[13] Id. at p. 4: “The provision provides that in the event the debt of the United States Government reaches the statutory limit, the Treasury Secretary shall issue debt to the extent necessary to pay principal and interest on certain obligations as defined. Obligations for which debt shall be issued are limited to those obligations held by the public or the Social Security Trust Funds. Obligations issued pursuant to this authority are exempt from the statutory debt limit. Section 2 also requires a weekly report from the Treasury Secretary if authority under subsection 2(a) is exercised that accounts for obligations due and amounts issued.”

[14] See n. 11.

[15]See The Washington Post, Wonkblog, Matthews, Michael Castle: Unsuspecting godfather of the $1 trillion coin solution (2013/01/04), at

[16] Actually, I wasn’t able to verify this precise quote, but I found something similar at 31 U.S.C. §5112(k): “The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.” You can find 31 U.S.C. §5112 at

[17] For more about the Treasury’s bullion depository at Fort Knox, go to Wikipedia and search “United States Bullion Depository,” or simply click here:

[18] See CNN World, Zimbabwe to print first $100 trillion note (January 16, 2009), at   See also the blog of 11/12/2010, The Wages of Hyperinflation, at . That one deals with hyperinflation in Weimar Germany.

In friendship false, implacable in hate:

Resolved to ruin or to rule the state.

 John Dryden[1]

[This is G. I think we’ll leave the Dryden quote up for another week. It seems to best suit America’s current situation. At this writing we’re in Day 14 of the Government shutdown. Democrats and Republicans are at an impasse[2] about whether, and on what terms our Government should be funded for this fiscal year, or any part of it. At the same time, we seem to be approaching yet another fiscal cliff.

Even if the Government had appropriations for this year, those aren’t really money. An appropriation only gives the Government authority to spend money for specified purposes, over a specified time, and up to a specified amount[3]. It doesn’t create money or cash or anything spendable. The Government gets its money from us (in taxes and other receipts), or by borrowing or printing it.[4]

Typically when the Government doesn’t have enough cash on hand to pay current obligations, it borrows to cover the shortfall, usually by issuing relatively short-term securities. But there is a ceiling on the total amount the Treasury can borrow[5] and – Guess what? – Treasury will reach it sometime this month. Current estimates are that if the ceiling isn’t raised by October 17[6], Treasury will run out of borrowing authority. Thereafter, the U.S. will be on a pay-out-of-current-revenues-only basis, and most likely will have cash problems by November 1.[7]

Conservatives, of course, see this as yet another opportunity to rein in Government spending. Their basic position is that they won’t vote for anything to raise the debt limit unless they get material concessions on the spending side, i.e. cuts in the social safety net, the Affordable Care Act and other programs Conservatives hate. Democrats don’t seem to be much inclined to agree, so it looks like our Government will have to continue on through October/ November with no new spending authorized for existing programs, and no new borrowing permitted for the bills as they come in. Just a couple of months ago this was unthinkable.

So what are the consequences? I’m not sure, and we don’t do economic forecasts here at Elemental Zoo Two[8]; but perhaps we can shed some dim light on what the Government might do if the unthinkable happens. I’ve asked Larry to take a look, and tell us whatever he can.]

The Trillion Dollar Coin

Thanks, G. First let me talk briefly about printing money. The Bureau of Engraving and Printing does that[9], but I’m not sure how BEP’s activity relates to the money supply, which is controlled principally by the Federal Reserve. Nor do I fully understand the role of the Congress, which our Constitution says has the power to “coin money and regulate the value thereof.”[10]

Nevertheless, there is an interesting quirk in current law that, on its face, allows the Treasury to mint, at the discretion of the Secretary, commemorative platinum coins of any denomination.[11] If it’s in the law, Congress must have permitted it, so that should take care of any constitutional objection. Back in January we suggested somewhat facetiously that the Treasury ought to issue one or two $1 trillion platinum coins, deposit them somewhere, and use them to pay off the outstanding national debt as it matures.[12] That way we could get below the debt ceiling without making any changes to it.

Well, I don’t intend to explore that any further right now. After all, we were doing satire back then, and not making a serious proposal. Nevertheless, given the current political situation, the ‘big coin’ solution might begin to look better and better as we stumble through October. But more about that later.

But let’s move on to the issue of the day, which is, what does the Executive Branch do when there are bills to be paid, and not enough cash on hand to pay them all? Let’s start with the things we sort of know, and move on to the less knowable ones later.

Public Debt and the 14th Amendment

We do know that Section 4 of the 14th Amendment to our Constitution says “The validity of the public debt of the United States, authorized by law … shall not be questioned.[13]” While some have argued this restriction applies only to debts incurred in the Civil War, the Supreme Court has held otherwise.[14] Actually we wrote a blog about that earlier this year, and pointed out that the Social Security Trust Fund also holds a lot of federal paper, which is public debt even though it’s not sold to investors.[15]

Does that mean that the debt limit adopted by Congress violates the 14th Amendment, because – in the current situation at least – it may prevent the Government from paying (i) interest on its debts, and (ii) principal as well when the debt matures? Good question! Congress hasn’t declared the federal debt securities invalid, or void, or anything like that. It’s just made it impossible for the Government to pay on some of them in accordance with their terms, i.e., on time and in the full amounts due.

Or has it? Most of the time, I would guess, there’s plenty of cash in the federal coffers to pay principal and interest on the federal debt. That’s probably the case even if we include payments due from the Social Security Trust Funds, which also are secured by federal debt instruments.[16] But, of course, the problem is that our Government has lots of other creditors. There’s military and civilian payroll to be met, payments to be made under federal contracts for goods and services provided, facility leases, grants and so forth, and, of course, payments promised under the numerous other programs bundled under the social safety net.

So why can’t the Government just prioritize its payments, make those required under the 14th Amendment, and stiff the rest of the creditors if necessary? That would allow Conservatives to realize their two most important policy goals: to maintain a military strong enough to intervene in conflicts around the world, and especially in the Middle East; and to force the American people off the dole, and back into healthy self-reliance.

[Oops! Larry, I thought we agreed we’d stick to the technical part of this debate, and avoid the politics!]

Right, I’ll leave the politics to the contestants. In September the Secretary of the Treasury wrote Speaker Boehner, sharply criticizing House efforts to prioritize Government payments:

The House of Representatives recently passed legislation that includes an ill-advised provision to prioritize payments, which would not protect the full faith and credit of the United States. Any plan to prioritize some payments over others is simply default by another name. The United States should never have to choose, for example, whether to pay Social Security to seniors, pay benefits to our veterans, or make payments to state and local jurisdictions and health care providers under Medicare and Medicaid. There is no way of knowing the damage any prioritization plan would have on our economy and financial markets. It would represent an irresponsible retreat from a core American value: We are a nation that honors all of its commitments.[17]

Note the language here. The United States should “never have to choose” between programs when it pays its debts; it should pay everything it owes.

Later the spin doctors took over and said, well, the Government shouldn’t have to choose and as a practical matter, it can’t, at least in the short term. Treasury’s financial systems, i.e. computers, aren’t set up to distinguish between types of payments. The vouchers come in, are certified, and the payments go out. The Treasury makes 80 million payments a month.[18] Currently there’s no good way to choose between them.

And, in any case, missing non-debt payments could trigger a recession, while missing debt payments could trigger a credit crisis.[19]


So where do I come out on all of this? Frankly, I don’t see any near-term agreement on the debt limit, or on FY 2014 appropriations.  I think the Government will blunder on down the road for a while, require its essential employees to go to work, miss payroll for them because of lack of appropriations and, of course, lack of cash due to the debt limit, skip lots of other payments that keep the economy afloat, default on the occasional debt payment, and stumble into a new recession or worse. That’s the ideal case for people who want to ruin the state, and then rule it, if they think they can ride to power after the crash.

But you didn’t ask for my political or economic opinions; you wanted a legal forecast. Well, defaults on our part, really in any payments, no doubt will spawn a blizzard of litigation. You can count on that. And, if the U.S. economy deteriorates badly because of the current impasse, the bond market implodes, interest rates spike, unemployment rises, etc. then serious people, including politicians, may take another look at the trillion dollar coin and the 14th Amendment as pointing the way out.  Why? Because, if the President can’t get new legislation out of the Congress in a crisis, he’ll have to work with whatever law there is to help restore the balance. For example,

  • He could resurrect the ‘big coin’ solution, that is, order the Treasury to (i) issue some high value (i.e., trillion dollar) platinum coins, (ii) deposit them at the Federal Reserve, and (iii) use them to redeem federal debt on its books. Or,
  • He could simply declare, perhaps by Executive Order, that all payments legitimately owed by the Government are ‘public debts’ within the meaning of the 14th Amendment, and any law that prevents them from being made ‘questions’  that debt and, therefore, violates the 14th Amendment.

Or he could do both. Of course, somebody would sue, most likely lots of somebodies, but with luck the litigation could take years to resolve. I make no predictions about how it would come out. But the delay certainly would give the country more time to address its underlying financial problems, hopefully not in the midst of a violent recession

You see, you asked me to think about the unthinkable. So I did.

[Yes I did, and you certainly did. Larry, thanks for all the hard work. Perhaps you ought to take a vacation until November 1. I promise not to forward your hate mail.

Next week hopefully we’ll talk about something else. Perhaps something less controversial, like new developments at the NSA? Perhaps.]

[1] This is John Dryden, the English poet, who lived from 1631 to 1700. See The Oxford Dictionary of Quotations (Oxford, 2004) at John Dryden, p. 287, n.2. Henceforth, the book will be cited as ODQ at __. If you want a biography of Dryden, of course you can find one in Wikipedia. Just go to

[2] Now here’s something up-to-date, that is emblematic of the problem. See Slate Politics, Weigel, Operation: Blame the Liberals: Tea Party conservatives occupy the National Mall to blame everybody else for the government shutdown (October 14, 2013) at

[3] See GAO, Principles of Federal Appropriations Law (3rd Edition), Vol. 1 (January, 2004), at p. 2-5: An appropriation is “[a]uthority given to federal agencies to incur obligations and to make payments from Treasury for specified purposes.” You can find the whole series of books at . Also the Government employee who tries to obligate the Government without an appropriation may commit a crime. See Anti Deficiency Act, 31 U.S.C. §§1341, 1349, 1350, 1351 (2006). See also 41 U.S.C. §11 (2006), prohibiting any contractual arrangement of the government “unless the same is authorized by law or is under an appropriation adequate to its fulfillment.”

[4] If you want a good discussion of the process, see Congressional Research Service, Levit, Brass, Nicola & Nuschler, Reaching the Debt Limit: Background and Potential Effects on Government Operations (September 13, 2013).

[5] It’s specified in Title 31 of the U. S. Code, Subtitle III, Financial Management, Chapter 31, Public Debt at 31 U.S.C. §3101(b). But that part of the Code usually is out of date. So, if you want the most current information, we’re betting that the Treasury still is the right place to find it. Go to Financial Management Service, A bureau of the United States Department of the Treasury, at ; then click on Federal Debt and check out Table FD-6.

[6] Actually, the Treasury said that by then it will have run out of “legal and prudent” measures to keep the country under the borrowing limit. You can find the Treasury notice to Congress at See also CNN Money, Sahadi, Debt ceiling deadline: Stop fixating on October 17 (October 10, 2013) at  We might stagger on a little longer with cash on hand and incoming receipts until some big bills hit.

[7] Id. See EconoMonitor, Kahn, Debt-Ceiling Deadlines: What’s So Special About November 1? (October 9, 2013) at

[8] But the Treasury does. Take a look at Department of the Treasury, The Potential Macroeconomic Effect of Debt Ceiling Brinkmanship (October 2013), available as a pdf download at

[9] The official website for the Bureau is at

[10] See U.S. Constitution, Article I, Sec. 8. “The Congress shall have power to lay and collect Taxes … to pay the Debts and provide for the common Defence and general Welfare of the United States …To borrow Money on the Credit of the United States…To coin Money, regulate the Value thereof…To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States….” This is a highly edited version of Section 8. As usual, we prefer the transcription of the Constitution (and its Amendments) maintained by the National Archives. You can find it at:

[11] See 31 U.S.C. §5112(k): “The Secretary [of the Treasury] may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

[12] See the Elemental Zoo blog of 1/06/2013, More Cliffs Approaching? at

[13] See U.S. Constitution, Amendment 14, Sec. 4: “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.”  See note 10 for the source.

[14] See Perry v. United States, 294 U.S. 330 (1935). If you want to see the original, go to your nearest Law School or courthouse library, and look it up there. If you want to pay for an online copy, there are plenty of services who will provide one. If you want to see one for free, go to at

[15] See the Elemental Zoo blog of 01/12/2013, Notes on the 14th Amendment and the Public Debt, at

[16] We pointed this out in January, in the blog referenced in note 14. There are two trust funds: Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI); collectively they’re called the OASDI funds. There’s an interesting discussion of the trust funds in Wikipedia. If you want to see it, go to the Wikipedia website and search “Social Security Trust Fund”, or simply click here:

[17] See Letter from Jacob J. Lew, Secretary of the Treasury, to John A. Boehner, Speaker of the House (September 25, 2013), available at

[18] For an early expression of this view, see Huff Post Politics, Paul N. Van de Water, ‘Debt Prioritization’ Is Simply Default by Another Name (09/19/2013) at

[19] See Reuters, White House: Debt prioritization would trigger legal battles (October 11, 2013) at