The Confederate States of America borrowed money to wage their insurrection. When they surrendered at Appomattox, the United States of America (the Union) had to decide whether or not to honor the Confederacy’s debts. Failing to do so would make lenders upset and possibly cause them to be less willing to loan money to America in the future. The decision was made not to honor the Confederacy’s debts, but to soften the blow to creditors a clause was added to the 14th Amendment that said, “The validity of the public debt of the United States shall not be questioned.”
As Kristen Roberts points out, the meaning of those words were less ambiguous at the time than they may seem today.
Then, as now, this promise written into the Constitution offered creditors confidence that lending to America – indeed, investing in America – would be safe.
“Every man who has property in the public funds will feel safer when he sees that the national debt is withdrawn from the power of a Congress to repudiate it and placed under the guardianship of the Constitution than he would feel if it were left at loose ends and subject to the varying majorities which may arise in Congress,” argued Sen. Benjamin Wade, a Republican supporter of the amendment.
If there is any true ambiguity it is in the fact that the debt ceiling is a limitation on the Treasury Department’s ability to have new auctions for bonds. One way of looking at this is that the auction is the issuance of new debt, not the honoring of old debt. Looked at in that light, you can argue that refusing to create new debt obligations in the form of bond contracts doesn’t violate the 14th Amendment because the 14th Amendment only refers to already existing debt.
But this is a very stupid way of looking at our credit. Simply put, selling new treasury bonds is how we pay our debt. A failure to hold new auctions is the exact same thing as not honoring the validity of our debt. It’s like saying that you can’t pay your electricity bill with a credit card because you aren’t authorized to incur more debt from Visa. But, if the Constitution says that you absolutely have to pay your electricity bill, then that is the end of the story. You must figure out a way to pay that bill.
Likewise, you cannot say that you recognize the validity of your debt to the power company but that you simply aren’t going to pay the bill. Failing to pay is the same thing as failing to recognize the validity of the debt.
If the debt ceiling has any useful purpose, it is to make it painful for the country to increase its deficit spending. This pain thereby puts a brake on how much debt we can incur. But that is really all the debt ceiling does. It creates a hassle. We might think this hassle is an important safeguard, but it isn’t a constitutional principle.
The constitutional principle here is that we must pay our debts no matter how painful it might be to do so.
So, the onus should be on Congress, not the president, to follow the Constitution. They are, after all, the only ones authorized to spend money.