US Debt Ceiling Stand-Off: Joe Biden's Optimism in the Face of a 'Catastrophic' Default in the US - The India Saga



US Debt Ceiling Stand-Off: Joe Biden’s Optimism in the Face of a ‘Catastrophic’ Default in the US

The United States is currently facing the challenge of the approaching debt ceiling, raising questions about whether President Joe Biden…

US Debt Ceiling Stand-Off: Joe Biden’s Optimism in the Face of a ‘Catastrophic’ Default in the US

Debt Ceiling

The United States is currently facing the challenge of the approaching debt ceiling, raising questions about whether President Joe Biden will utilise the 14th Amendment to circumvent a potential crisis. 


Last week, the Treasury Secretary of the United States- Janet Yellen notified Congress that the nation could default on its debt as early as 1st June, if the Republican-dominated House of Representatives and the US President Joe Biden’s White House did not reach a consensus to raise or to suspend the debt ceiling. 


What is the 14th Amendment?


The 14th Amendment, ratified in 1868, holds immense constitutional importance. Its primary objective was to guarantee equal protection under the law for all citizens and safeguard the rights of former slaves. However, Section 4 of this amendment specifically bears relevance to the ongoing debt ceiling debate.


Section 4 of the 14th Amendment states that “The validity of the public debt of the United States, authorised by law, shall not be questioned.” Legal scholars have interpreted this provision as a prohibition against actions that could undermine the nation’s ability to fulfil its financial obligations.


Brief history of the Debt Ceiling and Past Crises


The debt ceiling was established in 1917 as a mechanism to control government spending and borrowing. Its purpose was to ensure that Congress had oversight and control over the nation’s debt. Over the years, the debt ceiling has been raised numerous times to accommodate growing fiscal obligations.


Past debt ceiling crises have caused significant turmoil. In 2011, a political standoff over increasing the debt ceiling led to the first-ever credit rating downgrade of the United States. Another notable crisis occurred in 2013 when the government entered a partial shutdown due to a deadlock over the debt ceiling. These episodes highlighted the potential economic repercussions and raised concerns about the stability of the global financial system.


Overview of the Current Situation and Potential Consequences


As of today, the United States is fast approaching its debt ceiling limit. Failure to raise or suspend the debt ceiling would result in the government’s inability to meet its financial obligations, risking a potential default. The consequences of a default would be dire, causing widespread economic turmoil, damaging the country’s creditworthiness, and jeopardising international confidence in the U.S. economy.


In light of these risks, there has been speculation about whether President Biden could invoke the 14th Amendment of the U.S. Constitution to circumvent the debt ceiling. 


The relevant section of the amendment states that “the validity of the public debt of the United States […] shall not be questioned.” Advocates argue that this clause empowers the President to take necessary actions to prevent default and protect the nation’s creditworthiness.


However, the applicability of the 14th Amendment in this context remains a topic of legal debate. Biden Opponents and Critics argue that invoking the amendment to bypass the debt ceiling would be an overreach of executive power, as the authority to borrow funds is explicitly granted to Congress. Critics also contend that such a move could trigger a constitutional crisis and undermine the checks and balances system.


Why have debt ceiling standoffs become a recurring issue?


For starters, the debt ceiling is not a “forward-looking” budgeting instrument, i.e. it does not reveal what potentially ideal levels of spending look like. First, Congress approves programmes for which it does not have the entire funding, and then there’s a limit on how much the Treasury can borrow to pay for these already approved programmes. Which is why economists have called it a “strange” instrument. Take this analogy, for instance: first Congress approves $100 of spending, $70 comes in from taxes but the cap on what the government can borrow to pay for the rest is fixed at a mere $15.


Another reason why disagreements overthe debt limit happen often, almost annually since 2011, is that it has become a political bargaining chip, as any raise or suspension has to be approved by Congress. As American politics becomes increasingly polarised, the Opposition has often used the debt limit as a way of getting budgetary and other legislative concessions. Sometimes, debt rate hikes have also been tied to the passing of certain bipartisan legislations. Reuters points out that Congress has often imposed conditions on these debt-ceiling hikes, or paired them with other tax and spending activity.


What will happen if the U.S. defaults?


Analysts say there is no set post-default scenario since the U.S. has never actually defaulted on its debt before. They have warned, however, of a “catastrophic” situation for American and global financial markets. The New York Times notes that after the extraordinary measures get exhausted and cash with the treasury runs out, the government would be unable to pay its bills including military salaries, benefits to retirees, and interest and other payments it owes to bondholders. If the government cannot make interest payments to domestic and foreign investors who own its debt securities, it could plunge the globe into a financial crisis, say Wall Street experts.


The CFR points out that the “unthinkable” event of a U.S. default could lead to another downgrade of U.S. creditworthiness by agencies, large-scale job losses, weakening of the dollar, stock sell-offs, and a rise in the cost of borrowing for the U.S. government. It would also increase the national debt, in turn causing widespread interest rate hikes for business owners, mortgages, and other sectors. A drop in U.S. consumer confidence would translate to shocks in the financial market, tipping the economy into recession.


The creditworthiness or the confidence in the repayment ability of U.S. treasury securities has long strengthened demand for U.S. dollars and made it the world’s reserve currency, with more than half of the world’s foreign currency reserves held in U.S. dollars. A loss of confidence in the U.S. economy, resulting from default or even the uncertainty around it, could force investors to sell U.S. Treasury bonds, thus weakening the dollar. A sudden decrease in the currency’s value could domino across treasury markets as the value of these reserves drops.


Can the 14th Amendment be used to avoid a Debt Ceiling Crisis?


Arguments in favour of using the 14th Amendment


Advocates of invoking the 14th Amendment argue that this provision deems it unconstitutional to default on the national debt. They contend that if the debt ceiling is not raised in a timely manner, the President possesses the authority to prioritise debt payments, thereby sidestepping default and averting a potentially catastrophic financial crisis.


Arguments against using the 14th Amendment


Opponents of invoking the 14th Amendment maintain that it was not originally intended as a mechanism to bypass the debt ceiling. They assert that the power to raise or suspend the debt ceiling lies exclusively with Congress, and any invocation of the 14th Amendment would undermine the Constitution’s principle of separation of powers.


Historical examples of the 14th Amendment being invoked for financial purposes


Throughout history, the 14th Amendment has been invoked for financial purposes, albeit in different contexts. For instance, during the Civil War, the Union government utilised the amendment to repudiate Confederate debts. However, the application of the 14th Amendment to the debt ceiling remains a matter of debate.


Biden’s Stance on the 14th Amendment


Statements made by Biden and his administration


President Biden and his administration have refrained from explicitly expressing whether they would invoke the 14th Amendment to navigate a debt ceiling crisis. Instead, they have focused on urging Congress to address the issue through legislative means. Biden has emphasised the dire consequences of failing to raise the debt ceiling, highlighting the potential impact on the economy and financial markets.


Discussion of the political implications of invoking the 14th Amendment


Invoking the 14th Amendment to bypass the debt ceiling could entail significant political implications. Critics argue that it could be perceived as a contentious move, potentially setting a precedent for future presidents to disregard Congress’s authority over fiscal matters. Such a decision might lead to a political standoff and potential legal challenges.


Alternatives to invoking the 14th Amendment


Possible legislative solutions to the debt ceiling crisis


Rather than relying on the 14th Amendment, Congress has the power to raise or suspend the debt ceiling through legislative measures. Various proposals have been put forth, including eliminating the debt ceiling altogether or implementing automatic debt ceiling increases tied to budgetary factors. However, reaching a consensus on these proposals often proves challenging due to partisan divisions.


Analysis of the effectiveness of these solutions


Legislative solutions necessitate bipartisan support and prompt action to avert a debt ceiling crisis. Unfortunately, the history of debt ceiling debates reveals a pattern of last-minute negotiations and brinkmanship. The uncertainty surrounding these discussions strengthens the argument that a more permanent solution, such as eliminating the debt ceiling, may be necessary.


Pros and Cons of invoking the 14th Amendment




The 14th Amendment of the U.S. Constitution contains a clause stating that “the validity of the public debt of the United States […] shall not be questioned.” Proponents argue that this clause provides the President with the authority to take necessary actions to prevent default and protect the nation’s creditworthiness. By invoking the 14th Amendment, President Biden could potentially bypass the debt ceiling and ensure the continued payment of the nation’s financial obligations.




Opponents of invoking the 14th Amendment argue that such action would be an overreach of executive power. They contend that the authority to borrow funds is explicitly granted to Congress, and circumventing the debt ceiling through the amendment would undermine the principles of checks and balances. Critics also caution that invoking the 14th Amendment to avoid a debt ceiling crisis could trigger a constitutional crisis, further exacerbating the political and economic uncertainties surrounding the issue.


As the United States confronts the debt ceiling crisis, finding a solution that averts default and safeguards the nation’s financial stability is of utmost importance. While the idea of invoking the 14th Amendment has been proposed as a potential course of action, its legality and the potential consequences remain subjects of debate.


Continue Reading on The India Saga.