Thursday, July 28, 2011

D.C. of D.C. in D.C. on D.C. is D.C.

Debate and Confrontation of Dysfunctional Congress in District of Columbia on Debt Ceiling is Disturbingly Critical!

For solution we may have to draw from the U.S. Constitution.

There is no argument that the debt ceiling should be raised. The consequences are so serious that even thinking of the possibility that it would happen is already creating bad economic effects. President Obama, Speaker Boehner, Senate Leaders Reid and McConnell all agree.

Failure to raise the debt ceiling would mean default in our obligations. Default leads to the downgrading of our credit rating. Downgrading would result to higher interest rate. High interest would mean higher cost to service our debt which is already about 40% of the total budget. This means increasing spending resulting to a higher budget deficit. This runs counter to the very goals of certain groups who want to substantially reduce the deficit or to balance the budget.

This is not even mentioning its effects on everyday Americans, be they old, young, poor, middle class or rich. Interest rates on mortgages, car loans, student loans and definitely credit cards which keep everybody in play even temporarily. Confidence and trust on America’s ability to pay its obligations would mean fewer investments to American projects that produce jobs. Just the fear of defaulting has been taking the stock market down. Can you imagine if it actually happens? Credit Suisse predicts stock downfall of at least 30%.

Those who are opposed to increase taxes would in effect get it under this situation.

United States has the largest economy in the world. Most if not all nations of the world are economically interdependent with the United States. A default by the latter therefore would have a devastating effect internationally as well.

Congress has the Constitutional power to budget or appropriate. Correspondingly, it is empowered to approve and obligate the government to source the funds to finance what they have obligated and which were actually incurred. Funds could come from revenues such as taxes or if not enough, borrowed.

But Congress, this time by statute limited itself to borrow or incur debts. So if the obligations are much more than the sources (revenues and authorized borrowing), the law requires that the limit to debt or borrowing should be raised.

The real issue is the payment of obligations already incurred. Will the U.S. renege on its obligations? Most people think that if the debt ceiling is not raised by August 2, 2011, the U.S. has no choice but to default, hence the devastating consequences.

There is another law that is relevant to this issue. The 14th Amendment in the U.S. Constitution which reads, “The validity of the public debt of the United States, authorized by law… shall not be questioned,”

The appropriations, expenditures, and obligations already incurred are all public debts authorized by law. The Constitution clearly states that they are valid and cannot be questioned. No entity or institution, local law, state law or Federal statute can question it.

The President of the United States is therefore mandated by the Constitution to cause the meeting of America’s obligations and avoid impairing the obligation of contracts.

By authority of the U.S. Constitution under the 14th Amendment therefore, President Obama can raise the debt ceiling unilaterally if Congress fails to use its statutory power to do it. What you do not use, you lose.

Constitution trumps statute! Many legal scholars support this view. President Bill Clinton had considered using it during his term. For all its worth, I humbly support it.

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