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From “The New York Times,” I’m Sabrina Tavernise. And this is “The Daily.”
- archived recording (joe biden)
I just finished, I thought, a productive meeting with the Congressional leadership about the path forward to make sure America does not default -
In a high-stakes showdown this week, President Biden and the leaders of Congress met face to face in an attempt to avoid the US defaulting on its debt for the first time in history.
- archived recording (joe biden)
America is not a deadbeat nation. We pay our bills. And avoiding default is a basic duty of the United States Congress.
Today, my colleague Jim Tankersley on how close the country now is to that financial calamity and the radical step Biden might take to prevent it.
It’s Friday, May 12.
So, Jim, the federal government, as we all know, is in this rather frantic process of trying to avoid the nation defaulting on its debts. And we talked on the show last week about how that poses this really big challenge for the Speaker of the House, Kevin McCarthy. But of course, it also poses a really big challenge for President Biden. So walk me through the debt-limit dilemma from his point of view. What does this look like if you’re Biden?
So on Tuesday, President Biden welcomed Speaker McCarthy and other congressional leaders from both parties to the White House. And for all intents and purposes, this really was a negotiation. The timing of these talks has everything to do with what’s going on right now with the debt limit.
From the president’s perspective, what’s happening here is that Republicans are holding the nation hostage. They’re basically saying, we might let the government default on debt, catastrophically for the economy, unless President Biden agrees to a whole bunch of cuts in federal spending.
And the president has no intention of agreeing to the wide scope of cuts the Republicans have talked about. And he’s really opposed to the idea that he should have to negotiate at all over what he basically views as Congress’s responsibility to raise the limit to pay the bills Congress has already authorized.
Now, from Republicans’ perspective, Biden’s being unreasonable. They have passed a bill that raises the debt limit. And even though it comes with strings that he doesn’t like attached to it, that should be reason for him to sit down and say, OK, what can we agree on here?
So all of that in mind, the parties come to the White House on Tuesday afternoon. They sit down. And there’s real urgency behind the talks because we are barreling toward what is known as the X date. It’s the time when the Treasury Department is going to run out of its ability to pay all of the government’s bills on time. And Treasury officials have recently estimated that date could hit as soon as June 1 —
Which is really soon.
Yeah, it’s basically no time at all.
But so far in their talks, the president and Republicans in Congress have made almost no progress in finding common ground. They’re sort of stuck in a game of chicken, with each one kind of pointing the finger at the other and expecting that they will blink first, give in to the other side’s demands to avoid a default. And that’s a really perilous position for the economy and the country right now.
Right, OK. So basically up until this point, things have been kind of at a stalemate between the two sides. What can Biden do about it?
Well, the first is that he could put an end to that game of chicken and attempt to negotiate a deal with Speaker McCarthy that would be acceptable to both the Speaker and to the president. And probably what that would mean is some sort of agreement built around some kind of limits on federal discretionary spending over a period of a few years.
There’s a reason in particular that White House officials talk about spending limits as a possible anchor of a deal. And it’s because they don’t expect to increase spending anyway so long as Republicans control the House. So if they just effectively agree to put into writing what they expect to happen already, well, the president might go for that.
In addition to that, though, the president signaled on Tuesday that he might be willing to cut some spending in a way that Republicans have been pushing for for a while. Specifically, he would be open to canceling some of the money that was included in the stimulus bill he signed in 2021 but hasn’t been spent yet.
Now, Republicans estimate that cancellation would save $50 to $70 billion. But that’s a really small slice of their total proposal to raise the debt limit and cut spending, which actually sums up to nearly $5 trillion.
OK, so in this option, Biden would say, look, I’ll agree to a more moderate set of spending cuts. And in return, Speaker McCarthy, you’ll go ahead and raise the debt limit, no strings attached.
That’s certainly one of the things that a lot of folks around Washington expect could be an outcome of these discussions. But it’s not clear that would work. Speaker McCarthy would have to sell that compromise to Republicans in the House. And there are a lot of them who have really been agitating for much, much deeper cuts than any kind of deal with the president would entail and who could very likely refuse to vote for it.
Right, so big potential pitfalls to that one. So what’s the next option then?
Well, if the president decides that it’s just not fruitful to talk to the Speaker, he could try to go around Kevin McCarthy. He could try to cut a deal with just enough Republican votes to join with Democrats in the House and the Senate to raise the debt limit. That would require doing something to bring probably five Republicans in the House on board and close to 10 Republicans in the Senate. They’d have to probably use this legislative maneuver called a discharge petition.
[CHUCKLES]:: Yeah, it’s a way to bring a bill to the floor for a vote in the House even if the Speaker of the House doesn’t want it there. So theoretically, they could do this arcane process to bring up a bill that they have a small number of Republicans agreeing on to pass a debt limit increase with mostly Democratic votes.
It’s really tricky. It takes a lot of time legislatively. It takes a lot of political capital. And there’s no indication that the discussions are going on with Republicans or that there is even an appetite among Republicans to make this happen.
Got it. So these options don’t look particularly easy. Either get Republicans to agree to way less than what they’re asking for, or convince enough Republicans to turn their back on their party.
Well, yeah, none of the legislative options are perfect. It’s true. And it is what’s giving a lot of heartburn to people who watch Congress right now, is that they’re having a hard time seeing how it would work.
But there is another option that the administration is weighing. It’s actually something that they’ve been talking about for months, that is still on the table today and would be, I wouldn’t call it a nuclear option, but a really big, bold risk that the president could take to try to end this debt-limit fight by himself.
And what’s that option?
The president could decide to ignore Congress and ignore the debt limit. He could follow a theory of the Constitution that is effectively a constitutional challenge to the existence of a debt limit itself. It’s rooted in the 14th Amendment to the Constitution, which effectively says the government has to pay its debts. It can’t just not pay.
But the 14th Amendment, like the 14th Amendment?
Yeah, that 14th Amendment. [CHUCKLES]
I mean, that was the Amendment that was passed after the Civil War. And it was about slavery, right?
So what does it have to do with the nation’s debt?
OK, it’s wonky. But bear with me here.
As you just said, the 14th Amendment is adopted right after the Civil War at a time when lawmakers are setting out the terms under which the states that had seceded to join the Confederacy would be allowed to come back into the Union. It does a lot of stuff. It granted citizenship to former slaves, for example. But it also includes a section, section 4 if you’re scoring at home, that says the validity of the public debt of the United States shall not be questioned.
And there’s sort of a quirky reason why they did that. It was about the fears of Southern states regaining political power in a new Congress. The United States had borrowed money to finance the Union Army in the Civil War. And there was a worry that if Southern senators and representatives controlled Congress, they could just decide, oh, we’re not going to pay the people we borrowed money from for a war against our own states.
So they wanted to make sure that in the Constitution it said, nope, you have to pay all the debts.
Got it. So they were coming back in, having political representation in Congress. And the idea was, no, you have to accept and take on all of the debts. You can’t back out of them.
That’s exactly right.
So under that theory, a president, like President Biden, could decide that the Constitution trumps the law and that, in this case, it requires the government to keep issuing new debt to pay off its old debts no matter what the debt limit says.
So this clause has been around for a long time, right, since the 19th century. Why haven’t other presidents who faced this problem used it?
It has been around. And this is not the first time it’s come up. It was raised in a law review article at the end of the ‘90s. But it really entered the conversation from obscurity in 2011.
- archived recording 1
After seven-plus months of scathing political attacks, countless meetings between the president and lawmakers, there is still no debt ceiling deal. Bottom line —
When President Obama had that debt-ceiling fight with Republicans in the House —
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Some top-tier Democrats have said, hmm, the 14th Amendment, that might work for us.
At the time, there was a lot of buzz about it.
- archived recording 3
I’m hearing people talk a little bit more about the feasibility of this 14th Amendment option.
Even former President Bill Clinton said that he would have invoked the Amendment if he was still president.
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There’s a strong argument for what Bill Clinton is arguing.
But inside the Obama White House —
- archived recording (barack obama)
I have talked to my lawyers. They do not — they are not persuaded that that is a winning argument.
They never really seriously considered this.
And why didn’t they consider it seriously?
Well, first off, it’s not clear cut in the Constitution. The Constitution also says that taxing and spending resides with Congress. So it’s a theory. And it’s a theory that has some scholarship behind it. But it’s not a cut-and-dry, “everyone agrees on it” interpretation of the Constitution.
But beyond that, there were other considerations driving the Obama team when they didn’t consider this and that are giving the Biden team pause now. And the biggest one is this. Even if a president were to believe that this is constitutionally the right thing to do and take this leap, that leap would bring some really profound consequences.
We’ll be right back.
OK, so, Jim, walk me through what the consequences would be if the Biden administration actually decides to go for this thing, the 14th Amendment strategy.
Well, first off, we don’t know exactly what would happen. But I don’t think it would be that the president would step outside the White House one day and run out and scream into the void, I invoke the 14th Amendment!
[CHUCKLES]: Oh, no?
I mean, unlikely — possible, good television, maybe, but I don’t think so. But as the June 1st deadline approaches, the government runs out of the ability to pay its bills. So the president will essentially say, OK, I’m going to call the Treasury Secretary and tell her that we are invoking the 14th Amendment. And so we need to have another round of raising money to pay our debts.
Like, Janet Yellen, the Treasury Secretary, can just do that?
Well, her department holds what’s called a Treasury auction. It happens all the time. And it’s when the government goes out and sells new bonds to lenders, who are essentially giving the government money now in exchange for the government giving them some more money later on down the road.
So Biden calling up Yellen, says just do another Treasury auction. We do them every week. Do one this week. That sounds OK, right? Where’s the problem there?
Well, the problem is in the auction itself. And it’s specifically with the buyers of the government bonds. They, for good reason, might not be so sure that this debt they would be borrowing is actually going to pay off down the road.
If there’s a constitutional question about whether the government will actually be allowed to issue these bonds, well, then maybe you’re buying something that’s worthless. So those buyers in the Treasury auction are going to do what buyers in auctions do all the time when they’re buying a riskier asset, which is they’re going to pay less money for it.
And what effectively does that mean?
Effectively what it means is that the government is going to have to pay a much higher interest rate to borrow money in the short term. It’s kind of like taking out a payday loan with a really high rate.
But would the financial fallout here be worse than if the government just defaulted on its debt altogether?
Probably not. I mean, that is a big part of the consideration here. I mean, this would be chaos. An actual default on the debt could be crippling chaos. If the debt limit is hit and we truly breach the X date, the markets are going to go nuts no matter what Biden does, and not just Treasury markets.
But in this case, what’s going to happen is the government is going to at least keep that money flowing into the economy, which will be less of a disruption than if it just stopped paying people. And the trade-off is it’s going to be paying a really high interest rate to borrow that money to keep flowing.
So these are the financial perils. But I mean, there must be some pretty serious legal consequences here, too, right? I mean, Biden is essentially circumventing Congress.
Yeah, absolutely. I mean, it is basically a guarantee that someone would challenge this in court if Biden did it.
And what would that look like?
Well, there’s a real chance that some lower court somewhere in the country would decide that, in fact, the government can’t do this, that the Constitution does not say what Biden is saying and that the Constitution vests power for taxing and spending only with Congress. And the Biden administration would appeal. And it would very likely end up at the United States Supreme Court because that is how these big fights seem to end up these days.
Right, right. So OK, it gets to the Supreme Court. Then, what?
Well, the Supreme Court could decide any number of things. On the one hand, they could decide that the plaintiff is correct, that the government cannot issue any more debt. And it might say that debt is invalid that was just issued in the Treasury auction or that the government has to give the buyers their money back. So that would then cause the default that the administration had been trying to avoid, all the government spending would come to a halt — pretty dire economic situation.
And presumably what those bond buyers were worried about, right?
Right, exactly. On the other hand, the Supreme Court could side with Biden. And that could happen in actually a couple of different ways. For one, it could decide that no one has standing to sue to challenge Biden’s move because you need to show harm in order to be a plaintiff in a case like this. And the Court could decide that, well, no one is harmed by the government continuing to issue debt.
The second thing it could do, of course, is just agree with this interpretation of the Constitution. It could say the president is correct. The 14th Amendment overrides the law. And the government must keep paying its debts. In either of those scenarios, it would effectively be agreeing with Biden that the debt limit is unconstitutional and basically strike it down.
So in that scenario, I mean, if the administration did move forward with this constitutional strategy and it worked as you’re describing there, it would mean the end of these debt-limit fights altogether, right, which would seem to be a bit of a political earthquake.
It would be. It would be a political earthquake. It’s certainly something that a lot of Democrats and progressives who have pushed this interpretation of the Constitution for a long time would love to see. They would call it an end to the Republican hostage taking over the debt limit. Short-term, however, it would be a really big mess for the operations of this Congress and this government under this president.
Describe that mess.
Well, very bluntly put, it would make Republicans really angry. And they could retaliate in a number of ways. One of the easiest ways they could retaliate is by deciding, hey, the money that funds all of the government services that people know and use runs out at the end of September. And we’re just not going to pass a bill appropriating any more money until Biden reverses course on the debt limit.
So essentially, even if Janet Yellen is out there raising money, having these debt auctions, there are ways that Congress can still throw some pretty serious hurdles in the way of the government’s finances.
Yeah, Congress has to appropriate the money to run basic government operations, now, everything from the military to the Education Department to the national parks. And they could just decide, in protest, not to do that for a while, or indefinitely, until the president comes to the table and meets their demands.
So even if Biden does this and it goes OK, or at the very least it doesn’t blow up completely, it’s still pretty politically risky for him.
Yeah, this is a political consideration that has been discussed inside the administration. And that risk extends well beyond Congress. I mean, I think it’s very fair to say that we have no idea what public opinion would be about this. It’s certainly not something that’s been debated in the open. It hasn’t been aired in campaign commercials.
The president is just starting to run for re-election. And he’d be taking a risk here, hoping that voters would reward him for acting decisively to keep the nation from defaulting, but worrying that voters might get angry about it. And often when voters are angry, they blame the president. So that’s a risk for him, as well.
So, Jim, big picture here. How likely is it that this 14th Amendment strategy actually gets used by the Biden administration, I mean, given these risks you’re laying out?
Well, something really interesting on this happened on Tuesday after his meeting with congressional leaders.
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This nation has never defaulted on its debt. It never will.
President Biden gave a statement —
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Thank you. And now I’ll take your questions.
— and then took questions from reporters.
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But if you do, you said you’re certain you’re not going to —
And he was asked if he would consider invoking the 14th Amendment.
- archived recording (joe biden)
Well, the question — I have been considering the 14th Amendment.
He said he was looking at it.
- archived recording (joe biden)
But the problem is, it would have to be litigated.
He mentioned the legal reasons why it might not be a great idea. But he explicitly kept it on the table.
- archived recording (joe biden)
There have been discussions about whether or not the 14th Amendment can be invoked.
- archived recording 6
Is that the most likely —
I think that’s important. I think it certainly makes it much more likely that it could happen than people thought weeks ago when the president is refusing to rule it out in public in the midst of these talks with Republicans.
Now, with all that said, I think there’s still a decent chance that, whether it’s through a negotiation or a staring contest or whatever, the president and Congress end with an agreement to raise the debt limit before we hit the X date. That could mean kicking the can down the road just a little bit, a month or two, to give them more time to talk about the debt limit. And there’s always this possibility that financial markets will freak out right before a possible default and that that could spur Congress to act.
But regardless of whether Biden actually pulls the trigger on this 14th Amendment idea, isn’t the fact that it’s become such a point of conversation kind of meaningful in and of itself? Like, we’ve gotten to this point that this option is on the table. I mean, what does that tell us about where we are right now as a country, as a political system?
I actually had an interview this week with someone who has been around Washington for a long time and was talking to me on background about this crisis. And what he said was, I think, very resonant to this question, which was, no one trusts each other in Washington like they used to.
Inside the Biden administration, they do not trust that Republicans are actually going to raise the debt limit in time in the same way that the Obama administration trusted that. And Republicans don’t trust that Biden won’t circumvent them. So it’s almost self-reinforcing.
That lack of trust reflects a divided electorate, an angry electorate, people turning against each other in this country. And I think it has made even routine things, like raising a debt limit, not at all routine. And the president has sort of had enough of this.
He led the negotiations in 2011 to resolve the debt-limit standoff. And this time, he’s just done with it. He doesn’t want to be negotiating over the debt limit. He does not see it as appropriate. He sees it as hostage-taking. And so for all those reasons, this does not feel the same as those previous fights to me. And that raises the possibility that it could end differently.
Jim, thank you.
Thank you so much.
President Biden, Speaker McCarthy, and other congressional leaders were scheduled to meet at the White House again this afternoon to continue their negotiations over the debt limit. But on Thursday, the White House announced that that meeting had been postponed. We’ll be right back.
Here’s what else you should know today. On Thursday, Manhattan prosecutors said that they would bring criminal charges against Daniel Penny, the 24-year-old Marine veteran who choked and killed a homeless man on the subway. The district attorney’s office said it would charge Penny with second-degree manslaughter in the killing of Jordan Neely on an F train on May 1. Penny is expected to appear in Manhattan Criminal Court on Friday.
And the Food and Drug Administration announced that it has formally ended a long-standing policy of not accepting blood donations from gay and bisexual men. Instead, the agency is finalizing new guidance that will require all blood donors to fill out a questionnaire about their recent sexual activity. The change effectively ends a federal policy that had long been considered discriminatory.
Today’s episode was produced by Rob Szypko and Alex Stern. It was edited by Anita Badejo, contains original music by Dan Powell and Rowan Niemisto and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly.
That’s it for “The Daily.” I’m Sabrina Tavernise. See you on Monday.