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Monday, January 09, 2023

Section Four and the Debt Ceiling

Now that Republicans have organized the House, questions are being asked about whether the debt ceiling will be raised this Fall. If that does not occur in time, Section Four of the Fourteenth Amendment will be suggested as a possible remedy. This point was discussed at some length a decade ago during that debt standoff, but with no conclusion. I thought I would give a brief primer.

The key takeaway is that Section Four does not give the President or the Treasury Department the power to raise the debt ceiling. At most, Section Four gives the Treasury discretion to prioritize debt service over other federal spending. But only to the point that money is available. Would bondholders have a Section Four cause of action if the debt ceiling is not raised? Probably, but only if a payment is missed. This did not happen in the prior debt ceiling confrontations. The next one could be more severe though. 

Posted by Gerard Magliocca on January 9, 2023 at 10:19 AM | Permalink


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