I hate politics.
Personally, if we're prioritizing, I think he should do some math where they pay all treasury bonds, on time and 100%, and then just cut every other expenditure in half (or whichever % works out), across the board. Social security checks, contractor payments, gov't worker payments, etc. Anybody refuses to do work, send the half-paid national guard after them and order them, since we're in crazytown anyways. And tell them to write their congressman.
That's possibly the "least illegal" option, and certainly the most politically palatable, as far as respecting congress's self-contradictory legal orders in this mess.
See: http://www.volokh.com/2013/10/03/14th-amendment-option-table.
As for the illegality of prioritizing payments, as far as I can tell, out of the mandatory expenditures only a small amount is Constitutionally required (specifically, judges' salaries). The rest is only statutorily mandatory. As you correctly perceive, it seems preferable to commit a statutory violation to avoid a Constitutional one.
Constitution trumps amendments (but only in certain high-up courts), which trumps normal law, which trumps contracts (written "generally" before oral ones), which trumps common sense ("what a good house father would do"). The sum total of all these things form "the law" as viewed from the perspective of a person (so yes, you are legally obligated to "generally be good" even when the law doesn't explicitly require it (e.g. help people involved in accidents))
Basically since the government debt obligations are contracts, while the debt ceiling is a law, Obama has no choice in the matter : any lawful payments (like medicare, ...) have to be fulfilled before any contract is paid. So barring a new law (the "agreement" the news talks about), on Okt 17, the US should default. Maybe Obama can delay it a few days, but certainly no more.
Please note that congress is doing exactly what it was designed to do. Congress, whether you agree with it or not, represents the will of the people of the united states and Obama is ignoring it, refusing to do so much as negotiate (or so claims congress, and I see no reason to doubt their claims). He knew years in advance that this was coming and gambled. Every executive who has fought congress on this has failed, again something Obama is perfectly aware of (it featured prominently in his education for one thing, hell, it's one of the main forces that brought us democracy in the first place).
In case someone doesn't know this : Obama's a lawyer. Lawyers tend to be lawyers first, people second. And he has a history of this sort of thing : expect him to follow the law over common sense.
The Affordable Care Act was passed through normal legislative processes and defended by the judicial system. It has also survived an almost constant legislative assault since then.
Shutting down the government and threatening default over a piece of legislation you don't like is not part of the normal legislative process. It's radical. And you can even argue that with cute little last minute rule changes like HR 368 that it's borderline undemocratic as well. The American people may have mixed opinions on the Affordable Care Act, but I highly doubt they wanted the federal government shut down over it.
By refusing to bring a bill to a vote unless a majority of his party openly supports it, Boehner is explicitly preventing compromise.
The power of the purse is allocated to the house.
Yeah, but Article II charges the President with taking care that the laws be faithfully executed. To quote Lincoln (in a different context, certainly), "are all the laws but one to go unexecuted and the Government itself go to pieces lest that one be violated?" Obama would be on solid legal ground in saying that he has to reconcile conflicting congressional mandates by ignoring the debt ceiling.
(On the other hand, I read today that any debt that was issued above the debt ceiling would be a lot more costly because buyers would insist on premium interest rates to compensate for the increased legal risk that the debt would be held invalid.)
Wall Street was pretty chill through the middle of last week [2]. Once it started calling it became apparent that there was little it could do [3].
The expectation appears to be that Obama will prioritise payments after 17 October to avoid a default. Once a critical point is reached he will use "creative accounting," in the IMF's words, to come up with a solution. Him failing at that, the expectation is the Federal Reserve will find a way to credit the U.S. Treasury's account. All these options, it should be noted, involve the selective suspension of the rule of law - the lesser of the evils.
[1] http://www.reuters.com/article/2013/10/02/us-usa-fiscal-obam...
[2] http://dealbook.nytimes.com/2013/10/09/complacency-on-wall-s...
[3] http://www.nytimes.com/2013/09/04/business/economy/business-...
The debt ceiling has nothing to do with meeting ones obligations to creditors.
If the debt ceiling isn't raised, simply prioritize what the country's money is going to be spent on.
1. That could be a form of default. Not on the U.S. debt, but on its contracts.
2. Cash flows are lumpy - that's part of why we have government debt. Even reducing all non-debt payments to zero, the U.S. Treasury will have to default at some point before mid-November. There simply isn't enough money in the U.S. Treasury's account at the Federal Reserve to keep its cheques from bouncing.
The most likely outcome, if the executive branch has no legal course of action, is to choose the "least illegal" course of action [1]. The linked article from the Columbia Law Review has a detailed analysis of the three options. Here's the most plausible picks:
- Selective repayment. Pick and choose which payment obligations to discharge. There's obvious political issues here. Who gets paid, and who doesn't? Social security over Medicare? Military contractors over NASA?
- Increase taxation without the authorization of congress. Again, many inherently political questions. Who do we increase taxes on? In many ways, this is a mirror image of option #1.
- Issue new debt not authorized by congress. The biggest issues here are market factors, not political questions. How will the market react to this unauthorized debt? If it refuses to buy at low interest rates, this option is not likely to solve the underlying problem.
Several humerous non-options are also debunked in [1], to illustrate what "more unconstitutional" looks like:
- Sell Alaska back to the Russians. Use the proceeds to buy time.
- Mint coins, and by fiat appraise them for massive amounts. Sell them to the fed, and pay off the debt with the new funds.
Just read the article. It's a bit biased, but its analysis of options appears on the whole quite reasonable (I am not a constitutional scholar).
1. http://www.columbialawreview.org/wp-content/uploads/2012/10/...
it would not be Obama who has a Constitutional/Legal crisis...
it would be the United States.
It would be, quite literally, US Law mandating the violation of ...
US Law.
If you're really not understanding that, perhaps you should consider rephrasing your objection as a humble question.
OK... let's walk your suggestion through.
The President resigns.
The Vice-President succeeds.
The Vice-President is now the President.
Now the NEW President is obliged by US Law...
to violate US Law.
So we enact your solution again...
The NEW President resigns...
This time the Speaker succeeds...
The Speaker is now the President.
Now THAT new President is obliged by US Law...
to violate US Law.
So we enact your solution again...
Do you see the problem yet?
Most investors would say no. If a company is selling its cafeteria food to stay afloat, chances are (a) there won't be a company tomorrow or (b) it will find some way to repudiate inconvenient contracts, e.g. go bankrupt.
Some very smart people bought into an Argentinian oil and gas deal. Then the friendly government became less friendly and their deeds were worthless pieces of paper.
Even if you buy assets from a government in turmoil...
what is the likelihood that any new government emerging from that turmoil will allow you to keep the assets you purchased?
Historically... the odds have not been favorable to investors.
yes, it completely does. the US does not have the cash on hand to continue paying out to its creditors. to continue to pay its creditors, it must borrow more money.