The budget is its own ‘debt ceiling’

October 10, 2013

It could be that President Barack Obama and the Republican House of Representatives will again be able to avert fiscal and financial chaos through a short-term, ad hoc agreement on government funding and the “debt ceiling” limit. This would be good news for the world and its markets.

Going forward, however, we should repeal the 1917 Liberty Bond Act — the source of the “debt ceiling” regime that everyone’s talking about. This was effectively superseded by today’s budget regime, enacted under the Congressional Budget and Impoundment Control Act of 1974. Making this explicit by repealing the 1917 “debt limit” regime is preferable to leaving things merely implicit as they are now.

In what sense does the 1974 regime “implicitly” repeal the 1917 regime? To answer, begin with this apocryphal early 20th century statute familiar to some lawyers: This law supposedly imposed a strange, impossible requirement on two train conductors when their trains approach from opposite directions. The conductor of each train was to stop, await the other train’s passage and then continue the journey. If read literally, of course, this statute would leave trains idling indefinitely on the prairies, shutting down the railway. So the law cannot require what the “plain” language seems to suggest — nor would any court rule this way.

Something like this apocryphal impasse would confront the president if Congress did not raise the “debt ceiling” later this month.

On the one hand, Obama would be required — under the nation’s 1974 vintage budget law and continuing obligations — to keep paying the nation’s creditors and issue Treasury debt if tax revenues fell short of those payment commitments.

He would also, however, be required to cease making those payments, and thus violate the budget law passed under the 1974 regime, according to the 1917 “ceiling” regime, which was largely forgotten by the public until rediscovered by opportunistic politicians in 2011.

The president cannot comply with both regimes if read literally — nor would any court rule that he must. The courts must instead interpret one of the incompatible regimes as giving way to the other — and it seems clear that the older, 1917 regime would be the one to yield.

There are decisive constitutional as well as statutory reasons for this. The most compelling constitutional reasons are offered by Neil H. Buchanan of George Washington University Law School and Michael C. Dorf of Cornell Law School in a remarkable trilogy of Columbia Law Review articles. (See here, here, and here.)

Buchanan and Dorf point out that the president’s unilaterally raising taxes or unilaterally “prioritizing” which bills to pay to comply with the 1917 vintage “debt ceiling” would do far more violence to Congress’s prerogatives under Article I of the Constitution than would staying the course with Treasury debt issuance as mandated by the 1974 budget regime. The latter, they argue, is therefore the “least unconstitutional option.”

We agree with Buchanan and Dorf’s analysis — if the latest manufactured “debt ceiling crisis” is truly a constitutional crisis. We also, with them, endorse the argument offered by President Bill Clinton and others during the last debt ceiling crisis and recently reiterated — that Section 4 of the 14th Amendment to the Constitution, which prohibits legislatively impugning the debt obligations of the United States, nullifies the 1917 debt ceiling regime from its very beginning.

Even granting all of this, however, there are good reasons to expect that the courts would resolve the debt ceiling impasse without resorting to constitutional doctrine. For they could read the 1917 regime debt ceiling as implicitly voided, as a matter of statutory interpretation, by the 1974 regime budget.

Longstanding canons of statutory interpretation support our claim. These axioms were developed precisely to deal with conundrums like the one the nation is now facing.

Legal codes are organic human creations. They evolve over time. So it is not uncommon for codes sometimes to lose internal consistency. The circumstances that prompt legislation are often forgotten as statutes grow old and unused — as the “ceiling” law did until recently. Their logical consequences are equally easy to lose sight of — at least until a once-forgotten provision is put to new, never-intended use. In view of this, the law has developed secondary decision rules for courts and others to follow when confronted with these dilemmas.

One such principle, the “last in time rule,” mandates that a later enactment trumps an earlier one when both conflict. Another, the “absurd result” canon, has it that a legislature is unlikely to intend a manifestly unjust or absurd result. A third, known as the “specific trumps the general” rule, says that detailed prescriptions are more likely intended than general policy goals, if read as excluding the former.

All three of these canons converge where the 1974 budget and 1917 ceiling regimes are concerned. Combined, they suggest that the 1917 terms should never be interpreted to mandate default on national obligations that Congress has incurred through budget legislation.

The 1974 regime, of course, was devised after the 1917 regime, just as all budgets, appropriations, and continuing resolutions enacted pursuant to its provisions occur later than earlier ad hoc ceiling-changes with which they conflict.

There are two bases on which the “last in time” rule can justify Obama’s continuing to pay national obligations as they come due. As a general matter, the 1974 budgeting regime calls continuing enforcement of the 1917 “ceiling” regime into question — particularly when it presents an obstacle to compliance with the 1974 regime.

In addition, the nation’s continuing budget obligations left in place and effectively re-endorsed under the last budget stopgap legislation in March, not to mention its many non-continuing obligations reinstated by that legislation, came after the last legislated reaffirmation of the 1917 regime “debt ceiling” in February. Courts would rule that the March legislation, which avoids default, is controlling.

Turning next to the “absurd result” canon, trying to comply with both the 1974 budget regime and the 1917 “ceiling” regime would be like attempting to meet a requirement to borrow x and a requirement not to borrow more than y < x. That would be absurd — not to mention unjust, in light of the systematic theft from creditors that attempting to comply with both would entail. A court should accordingly “reconcile” the two incompatible requirements in favor of that which does not lead to an unjust and catastrophic default — meaning the 1974 regime budget.

Turning finally to the “specific trumps the general” rule, the 1974 regime’s legislative history reveals that it is meant to address comprehensively what the 1917 regime, even as updated in 1939, addressed only piecemeal — Congress’s larger role in the budgeting, spending, taxing and borrowing process that the president had earlier led.

Anyone who has seen a federal budget knows that these required expenditures, taxings and borrowings are painstakingly detailed and specific — in dramatic contrast to an inconsistent requirement that borrowing in aggregate not exceed some arbitrarily selected amount. Requiring the president to rewrite the budget’s expenditure or taxation provisions would also do far more violence to congressional budget prerogatives, as Buchanan and Dorf argue, than just continuing to comply with the budget’s borrowing requirements.

It therefore makes as much sense under the “specific trumps the general” canon as the “later in time” and “absurd result” canons to disregard the categorical 1917 regime ceiling whenever it conflicts with the detailed 1974 regime borrowing requirement. A court should rule as much.

All rules concerning what to do about apparently inconsistent legislation, then warrant that the president treat the 1917 “debt ceiling” regime, when incompatible with the 1974 budget regime, as yielding to the budget itself and its continuing mandates — which include all obligations Congress has already incurred. If Tea Party Republicans object, they could try their luck in court — and learn how likely a federal judge will be both to grant them standing and hold that a constitutionally infirm, categorically stated 1917 regime trumps a constitutionally impeccable, painstakingly detailed budget determined by 1974 requirements. Particularly when complying with both would not only be impossible, but impose grave injustice and economic catastrophe in the trying.

The policy support for obeying the 1974 budget regime rather than the 1917 “ceiling” regime is also beyond question. U.S. government obligations are the only remaining “risk-free” form of indebtedness in the world. All other credit instruments, and their derivatives, are priced from the baseline of U.S. credit. The risk-free rates of return on U.S. obligations underpin the relative rates on equities and non-fixed-income assets of all types.

The entire global financial system accordingly uses “risk-free” U.S. credit obligations — either for wealth storage or as a benchmark for pricing other investment risk. Why would anyone pretend that the president might be legally required to put the financial system at risk by taking that away — when he is statutorily required not to?

The answer can only be politics.


PHOTO (Top): Speaker John Boehner (R-Ohio) (C) stands with fellow Republican House leaders as he addresses reporters in Washington, October 10, 2013. REUTERS/Jonathan Ernst

PHOTO (Insert): House Speaker John Boehner (R-Ohio) (R) and House Majority Leader Eric Cantor (R-Va.) (L) switch places at the microphones as they address reporters at the U.S. Capitol in Washington, October 10, 2013. REUTERS/Jonathan Ernst


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

The debt is not risk free to actual American citizens, only to the gambling casino banks. G-Zero awaits, Israel, Saudi and China are chomping at the bit.

Posted by 2Borknot2B | Report as abusive

Another steaming heap of fresh bovine scat. Such emotional propaganda utterly devoid of rational thought would doubtless have made Goebbles proud!

The “secondary decision rules” can and certainly should be taken into account, but here messers Alpert and Hockett use their facts as a drunk uses a streetlight…for support and not illumination. They have chosen to presume that the the 1917 “debt ceiling” regime and the 1974 exercise of “Congress’s larger role in the budgeting, spending, taxing and borrowing process” are equally “constitutional”. This is obviously wrong.

Such presumption is clearly contrary to the very purpose of our federal government. The power of our federal government is directly derived from “we, the people”, who live in a place called “reality”. “We, the people” have never possessed the power to suspend financial reality, so such authority as is today claimed by Congress MUST be questioned by any and all reasoning Americans.

I would further question from whence arises the authority of our leaders to ignore the solemn oaths they took before assuming office? When they act incompetently, irresponsibly, or maliciously, is not such obvious misuse of official or agency power, by definition, contrary to the “best interests” of “We, the people”?

Our government of today is an ugly, bloated malignancy whose primary goal is growth. When it serves itself first from available revenue, leaving genuine needs such as maintaining America’s infrastructure unmet, we should experience horror, shame and fear; in that order.

Each and every so-called “leader” even remotely responsible should long ago have been stripped of office and thrown out of OUR government in disgrace. In this we have failed spectacularly in our duty to ourselves and our progeny to preserve the rich and unparalleled legacy inherited from our forefathers.

America’s leaders, by 1917, had run out of the common sense necessary to not spend more money than they had. They instead sought to assure the financial solvency of the nation from that time forward. They intentionally limited, generally by statute and specifically by periodic consensus, that amount in excess of available revenue Congress could spend. Nothing arbitrary or ambiguous there as to their intent.

While not a “balanced budget” remedy, it recognized the insanity of NO limit, and thus provided a workable method with which Congress’ irresistable tendency to OVERSPEND could be reasonably restrained. This was logical, appropriate, good for the country in both long and short term, and worked for a half century without meaninngful challenge or question of constitutionality.

Fast forward to America’s “leaders” in 1974. Tired of fiscal constraints on legislative hopes and dreams they KNEW America could not then afford, they sought a way around the wisdom of 1917. They created a budgetary construct of “spending commitments” that would, without specific action or accountability by anyone, create virtually unlimited “national debt”.

They wove their spend and spend tendencies into a web that would maintain our government on any course and momentum of choice with NO ONE accountable at the wheel! We don’t let railroads run their trains this way because of the obvious threat to the public as well as to the hardware and their own liability.

But today our “leaders” are much more concerned with their own re-election, again and again. The safety and well being of ordinary Americans is no longer on their priority list. They scheme and connive to keep “we, the people” at each other’s throats so we will not know them for what they are and rid ourselves of them.

Today’s heirs and dependents of political reprobates would claim the 1917 legislation “unconstitutional” because they have now perfected the illusion of a “perpetual money machine”. The “money is not gold bars cast or precious metal coins minted, but mere paper and ink printed without meaningful restraint or consideration of ultimate effect on our fiat currency.

Their fiscal “never never” land now runs up against the shoals of the 1917 Debt Limit. The battle line between fiscal responsibility and irresponsibility they obscure as best they can. Let’s see the hands raised of all those Americans who are FOR fiscal irresponsibility FOREVER by today’s federal government. No hands? I thought not, for those in favor of such would obviously be fools.

So it would seem that the “absurd result” canon would support the 1917 legislation, being both responsible and good for the country in the long term. The 1974 construct, over time, will obviously place the fiscal viability of these United States in grave peril; and the value of it’s currency in ever-increasing doubt.

The “last in time rule”, taken literally and alone, would mandate that the word of an idiot supersede and override the words of a genius if the idiot speaks last. Everyone would want “the last word” if that is all that counts. Such could only result in legislative chaos. So common sense dictates “wheat” (meriterious argument) be separated from “chaff” (diliatory argument of no merit) such that debate and due consideration be reserved to legitimate issues.

The 1974 construct is clearly absurd, bad for the country and it’s citizens, idiotic in fundamental concept with NO redeeming characteristics. It is so clearly “chaff” that serious consideration is futile. It is so incredible in concept as to be unconstitutional as defined by the unsavory results of it’s operation and effect. There is no meaningful conflict to resolve between a long established and necessary statute of merit and long standing and a fiscal absurdity of more recent origin.

As to the “specific trumps the general” rule, I would say that the DUTY of the government here is VERY specific. Do NOT spend irresponsible, do NOT debase our dollar, do NOT pledge the present AND the future of this country to buy votes that keep reprobates who have long forgotten their oaths to “we, the people” in power.

Many of the so-called “required” expenditures, taxings and borrowings “painstakingly detailed” in any Congressional budget are discretyionary and NOT mandatory, or “required”. Repeating a lie enough times may make a majority of people believe it the truth. It does not, however, MAKE IT TRUTH! Big difference.

The point at issue is NOT some “inconsistent requirement that borrowing in aggregate not exceed some arbitrarily selected amount”. Any inconsistency is merely that the AMOUNT of excess spending keeps increasing hour after hour, day after day, week after week, month after month. It is “cross the line” EXCESS SPENDING that must stop. The amount, once over the line, is of no lasting consequence.

The requirement NOT TO EXCEED is obviously consistent with fiscal sustainability. This is a non-argument, false and misleading on it’s very face. When you say: “Requiring the president to rewrite the budget’s expenditure or taxation provisions would…do…violence to congressional budget prerogatives…”. Oh, so it’s “violence” when prudent minds insist Congress and America live within it’s means, thus ASSURING that America’s JUST debts be unquestioned and timely paid IN THE LONG RUN? Please.

The ultimate default will be when America’s financial strength is hollowed out from within such that it ultimately collapses in upon itself when incapable of standing any longer. Who then will still believe U.S. government obligations were “risk-free” indebtedness when the world economy lies in ruins?

“Yes, our court should accordingly “reconcile” the two incompatible requirements in favor of that which does not lead to such unjust and catastrophic ultimate default!

Posted by OneOfTheSheep | Report as abusive

Now I understand why the NYT limits posts to 1500 characters.

Posted by LizR | Report as abusive

You put so much heat into that post, so little light. You filled it with blatant falsehoods, to enhance a position that has only one point of view, one goal. The hilarity of it all is that your entire nihilistic, anti-government movement was invented by people who were groping for a winning political strategy. The body of this slapped-together ideology is almost entirely composed of spin. And they are laughing at you for wallowing in their waste. Congratulations! Your political discourse has devolved into frothing hatred, and any justification it has is backwards-engineered. You are welcome to return to reality at any time.

I keep hearing otherwise good, bright people say ridiculous things they absorbed from the soulless Tea Party machine. This morning on the radio, a woman was interviewed about the government shutdown. She said it was worthwhile, because Obamacare had to be stopped. Why? Because “government shouldn’t be involved in healthcare.”

Which, of course, means the FDA and CDC and NIH and whatnot have no right to exist. And, obviously, she will not mind government being involved in healthcare when she goes on Medicare. Then, she’ll bitch about inadequate benefits and the cost of the gap.

The people who are furious over these issues never have a shred of intelligent analysis to bring. They parrot the often-contradictory, daily-changing talking points that the strategists feed to talk radio and Fox News, which feed the parrots.

You are capable of thought. You have to get the blind hate and blind, unquestioning absorption of propaganda out of your life first. Then maybe you will have something worth adding here.

Posted by NoYouWillNot | Report as abusive

OneofTheSheep, take a lap

Posted by limolib | Report as abusive

Of course, what’s forgotten is that since the Continuing Resolution expired with the end of the fiscal year, there is no budget appropriated. Congress, at this point, has set non-mandatory, non-essential spending to -0-.

In addition, since no Congress can bind another Congress, it takes “currency.” The newer 2013 Congressional resolution (authorizing additional debt or denying additional debt) would counterweigh anything from 1974.

Posted by RmanB17499 | Report as abusive


If I believed you credible I would ask you to be specific as to my “blatant falsehoods”.

I hate no one. Yes, I scorn those who refuse to think for themselves. I make as many conservatives angry with my views on abortion and the unaccountability each of us encounter daily from BOTH our government and large businesses.

Quite frankly I do not think this country will exist in the form we now know it in three decades. People who think as you do, if that can be called thinking, strongly suggest by their very existence, that Darwin may have read the tea leaves backwards. The theory is looking more and more plausible that somehow man sprung forth on this earth at the absolute pinnacle of his perfection and today he is well along a journey to become pond scum.

Posted by OneOfTheSheep | Report as abusive


Perhaps, just for you, Reuters could post a digest of it’s news comments and comments on Twitter?

Posted by OneOfTheSheep | Report as abusive