The latest potential debt ceiling crisis is now safely in our rear view mirror, having come and gone with a whimper rather than a bang. That’s okay with me, by the way, as some readers will remember that I opposed the defunding strategy that Senator Ted Cruz and his adherents bungled so badly last fall. However, the Congress is addicted to spending more money than our Federal revenue stream will support, so there will be more crises down the road, sure as death and taxes.
Now comes Duke University law professor Steve Schwarcz to postulate a potential new strategy for future Presidents (or maybe even Obama) to use in avoiding a default, a strategy which would bypass Congress altogether. An excerpt from law professor Kenneth Anderson’s post from yesterday at the Volokh Conspiracy about Professor Schwarcz’s idea (BTW, for you non-accountants, the term “monetize” just means taking action to convert an asset, tangible or intangible, into cash):
… although the Executive Branch lacks authority to directly issue Treasury securities above the debt ceiling, it has the power to raise financing by monetizing future tax revenues. In each of the proposed options, a non-governmental special-purpose entity (SPE) would issue securities in amounts needed to repay maturing federal debt. Depending on the option, the SPE would either on-lend the proceeds of its issued securities to the Treasury Department on a non-recourse basis, secured by future tax revenues; or the SPE would use the proceeds of its issued securities to purchase rights to future tax revenues from the Treasury Department. In each case, therefore, future tax revenues would form the basis of repayment to investors.
The full article is HERE.
Those who favor a con-con (Constitutional Convention) do not always appreciate the myriad number of issues that the public might want to see addressed at such a convention, but I am confident that this would be one of them, as it is such a radical and divisive departure from all our previous assumptions about how debt ceiling confrontations might be resolved.