With time ticking on the debt ceiling deadline and the negotiations in Washington at an impasse, former President Bill Clinton suggested last week President Obama should put an end to default talks by unilaterally invoking the 14th Amendment.
Clinton was referring to Section 4 of the amendment - which was ratified more than 140 years ago to ensure the payment of Union debts after the Civil War.
"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
President Obama has since said that's not an option he wants to pursue.
Douglas Holtz-Eakin, a former Director of the Congressional Budget Office, says that's probably a wise idea; invoking the 14th Amendment may work to thwart a default but it also ignores the problem of our long-term structural deficit. If the President tries that course of action it will prove "the politics are so broken that we can't undertake a real attack on the problem - which is the rising debt - and that's not a comforting message for financial markets," he says.
Another option, as ratings agency Moody's recommends, is to eliminate the debt ceiling altogether. "We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty," Moody's analyst Steven Hess wrote in the report.
Holtz-Eakin agrees with that assessment, telling The Daily Ticker: "It hasn't been a triggering action for any change so getting rid of it makes a lot of sense."
Holtz-Eakin, now president of the American Action Forum, also believes eliminating an arbitrary date will yield bigger structural changes in the form of tax reform. This debate has been dominated by, "too much emphasis on revenue, the revenue has to be through tax reform," he says. "That takes time."
More than the eight days until August 2... that's for sure.
- government debt
- structural deficit
- 14th Amendment
- Congressional Budget Office
- former President Bill Clinton
- tax reform