July 5, 2011

On its current course, the United States is four weeks away from defaulting on its debt for the first time in its history. If that happens, businesses will fail. Financial institutions will fail. Home values will decline. Mortgage rates will skyrocket. Spending and investment will all but disappear. Social Security checks will stop being mailed. Everything from military pay to food inspection will be compromised, if not fully cut off. The millions upon millions of Americans who are unemployed or underemployed will be joined by millions more.

Across the world, America’s second financial collapse in three years will drag down already fragile economies in Europe, Latin America and Asia, potentially creating a “worldwide depression,” as Senate Majority Leader Harry Reid described it. In short, we would be thrown back deep into economic turmoil — only this time with even fewer tools to crawl our way out.

In theory, this is unthinkable, and it will be remedied by reasonable political parties making reasonable concessions across the negotiating table. But Republicans have been negotiating in bad faith, unwilling to compromise even an inch on their extremist and absolutist positions. Some are no longer willing to come to the table at all.

With that backdrop, President Obama may find that there is only one course left to avoid a global economic calamity: Invoke Section 4 of the 14th Amendment, which says that “the validity of the public debt of the United States … shall not be questioned.” This constitutional option is one that the president alone may exercise.

If the Aug. 2 deadline arrives and no deal has been made, Obama could use a plain reading of that text to conclude — statutory debt ceiling or not — that he is constitutionally required to order the Treasury to continue paying America’s bills. In that sense, this is not just a constitutional option, it is a constitutional obligation, one even the Tea Party will have trouble denying.

There are reasons why such a solution is less than ideal. There ought to be some concern about executive overreach; the very idea of the president deciding which laws are and are not constitutional has disturbing ramifications. And to the extent that the goal of the move is to prevent market panic, it remains an open question as to whether it would succeed. But market panic will surely come with the failure to reach a deal altogether. The consequences of default are simply too severe — and too long-lasting — to take this option off the table. It may not be ideal as an elective choice, but as an option of last resort, it is a necessity.

If Obama does choose to move forward, he will be doing so on strong legal footing. In Freytag v. Commissioner (1991), the Supreme Court held that the president has “the power to veto encroaching laws . . . or to disregard them when they are unconstitutional.” The final word still may lie with the Supreme Court, but in the interim, the president need not wait for its opinion. “As a simple matter of constitutional logic, the president can refuse to enforce a statute he believes violates the Constitution,” said Professor Barry Friedman of NYU Law School in a telephone interview with me. “In fact, he is sworn by oath not to enforce it,” added Friedman, author of the book “The Will of the People: How Public Opinion Has Influenced the Supreme Court and Shaped the Meaning of the Constitution.”

It is also unlikely that the action would be successfully challenged in court. Only Congress would have standing to sue, but doing so would require a joint resolution, something a Democratic-controlled Senate would almost certainly block.

President Obama should commit to exercising this obligation — as a last resort. And he should commit publicly, as soon as possible.

Doing so will give him the leverage he lacks in the debt-ceiling negotiations. Right now, Republicans’ willingness to let the economy default, consequences be damned, gives them enormous leverage. But presumably, if a deal is not reached by the deadline, and the president is forced to exercise his constitutional obligation, Republicans will get nothing at all. Not the trillion dollars in cuts already agreed to. Not the additional trillion in cuts they are seeking. The threat, alone, of invoking the 14th Amendment defuses the bomb Republicans have strapped to the hostage.

Most would agree that taking such a step would be out of character for a president who has avoided this brand of confrontation. But great leaders adapt to adverse circumstances, and this is no exception. The president doesn’t just have a political and legal obligation here; he has a moral one, too. A default would be wrenching for the poor and middle class, stripping families of their jobs, their homes and programs they depend on for survival. A debt deal, negotiated entirely on Republican terms, would be devastating too — for everyone who isn’t a hedge-fund manager or private jet owner.

That leaves the president with two choices: He can give in to unthinkable Republican demands or he can choose, instead, to exercise his constitutional authority, end the debt-ceiling standoff and craft a new budget deal, defined, finally, by shared sacrifice.