Right now, the Federal government is running against the debt ceiling: on 2 August, it will no longer be able to borrow money, and be officially broke. Timothy Geithner, Secretary of the Treasury, has cited Section 4 of the 14th Amendment as a reason that the government should keep borrowing anyway. Let’s read it together, shall we?
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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. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
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The Amendment was enacted after the Civil War, and the former Confederate states were required to ratify it as a condition of readmission. In that context, the meaning is clear: what the Union spent to fight the Civil War was a valid debt that could not be repudiated, but as for the debts of the Confederacy, or the value of slaves as assets, well, tough noogies.
OK: what does that mean now?
Debts of the United States that have been previously authorized cannot be repudiated. So we have to continue paying interest on our outstanding debts.
But what if we’re in such bad shape that we need to take out new debt to service our existing debt?
In that case, perhaps, we could use the authority to coin money, if we hadn’t delegated it to the Federal Reserve. But we’re not quite there, yet.
More practically, what the 14th Amendment tells us is that we do not have the option of failing to service our debts. If we can’t create new debt, we have to take money that would be spent on other activities in order to pay the interest we owe.
So this means that everything else–defense, civilian administration, and even Social Security and Medicare–must be cut in order to pay our debts.
Even Social Security? I hear you cry. You mean like poor little old ladies?
Alas, the little old ladies don’t have a Constitutional amendment. Sorry.