Bypassing Congress on Federal Debt: Executive Branch Options to Avoid Default

Abstract

In a prior article, I examined how a US. debt default might occur and analyzed its potential consequences. Even a mere "technical" default, such as temporarily missing an interest or principal payment, "almost certainly [would] have large systemic effects with long-term adverse consequences for Treasury finances and the U.S. economy." The most plausible U.S. debt default would in fact be a technical default-a temporary default due to Congress's failure to raise the federal debt ceiling. The US. Department of the Treasury recently cautioned that such a default, which became a near reality in October 2013, could be disastrous: "In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth. This Feature focuses on that potential cause of a U.S. debt default -a technical default resulting from Congress's failure to raise the federal debt ceiling- and analyzes how the executive branch of the federal government might be able to prevent such a default regardless of the Congress's inclinations. My analysis assumes that Congress fails to raise the debt ceiling due to political paralysis, political gamesmanship, procedural voting impediments, or any reason other than a clear desire to force the nation to default on its debt; that more U.S. debt is coming due than can be refinanced under the applicable debt limit; and that the executive branch is searching for ways to avoid a debt default.