Will Debt Ceiling Negotiations Lead To Heartache? Signs Point To Yes.

With the June 1 (give or take a few days) deadline to do something about the debt ceiling, official Washington has turned its attention to how it all ends.

Will there be a deal that pleases no one? A temporary fix that puts the tough decisions off for a few weeks or months? A straight-up default?

Those are the conventional options, the ones that come to mind first, are the most likely to occur and will grab most of the attention in the days ahead.

There are a couple of unconventional options, too. As The Washington Post's Amber Phillips writes, one involves the president ordering the U.S. Mint to create a “$1 trillion dollar coin” that would be deposited at the Federal Reserve. The coin would then serve as the source of credit for Uncle Sam to pay the bills. At least for a while.

There are multiple problems with such an idea that make it a non-starter:

The notion sounds wacky, but it's based off a law that gives the Treasury Department authority to mint any amount of coin it wants to. And as debt ceiling battles have become more frequent, this idea has been treated seriously lately in intellectual circles. Except for the person who arguably matters the most here: [Treasury Secretary] Yellen has dismissed this idea as a gimmick.

There's also the sticky issue of whether the Fed would even accept such a coin. But if the treasury secretary is against it, then the option is moot.

But there's a possible constitutional option, too. As The Wall Street Journal's Amara Omeokwe and Siobhan Hughes write, some legal experts:

…believe Mr. Biden has the authority to instruct the Treasury to continue issuing government bonds, regardless of what Congress does. One legal theory that such action would be justified relies on the 14th Amendment to the U.S. Constitution, which says “the validity of the public debt of the United States…shall not be questioned.”

Neil H. Buchanan, an economist and professor of law at the University of Florida, said that amendment essentially renders the debt ceiling unconstitutional, meaning Mr. Biden has room to act.

Such an action would undoubtedly draw a legal challenge. That would take time to resolve – which could result in enormous economic problems.

Historically, politicians are risk-averse. Taking bold, dramatic or novel approaches to problems carries huge political risks. Too big and too risky for any self-respecting pol who wants to win reelection.

That likely takes any 14^th Amendment razzle-dazzle off the table, too. After all, who wants a president – any president – to unilaterally decide what is and is not constitutional? That's what tin-plated autocrats do. Not U.S. presidents.

There is no easy, clean, unique way around this problem. It will take a lot of time, plenty of give and take, and not a few hurt feelings to avoid a default.

And let's recall 1979, the last time the U.S. defaulted on a portion of its debt payments on roughly $120 million of bonds. Markets were upset, of course. And the U.S. ended up having to pay even higher interest rates on its entire debt because of it. According to Ball State University finance professor Terry Zivney, this small default resulted in rates rising “six-tenths of 1 percent” on what was then slightly less than “a trillion dollars” of overall debt, a cost of “around $6 billion a year on a $120 million mistake.”

Imagine the interest payments markets will demand in case of a default on $31 trillion of U.S. debt.

The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.

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