This webpage, developed by Charles S. Konigsberg, J.D., former General Counsel for the U.S. Senate Finance Committee and Assistant Director at the White House Office of Management and Budget, reviews 7 options that have been discussed for situations where political gridlock is preventing a necessary increase or suspension of the debt limit. Option #1 suggests the President is required by the faithful execution clause of the Constitution to borrow in sufficient amounts to fully execute appropriation laws enacted later in time and in greater specificity than that debt limit. Option #2 asserts that the debt limit itself is unconstitutional under the 14th amendment. Option #3 suggests that a cash crunch created by the debt limit can be resolved by issuing trillion-dollar platinum coins. Option #4 suggests that Treasury raise additional cash by replacing expiring debt with premium bonds. Option #5 suggests that Treasury issue perpetual or “consol” bonds which pay interest without a fixed maturity date. Option #6 suggests a Treasury buy-back of old bonds at a discount, creating room under the current debt ceiling for new debt. Option #7 suggests that the Federal Reserve advance the timing of its remittances to the Treasury, in effect a cash advance to address short-term cash shortfalls. Option #8 is a discharge petition in the House to force a “clean” vote on a Debt Limit increase or suspension. Option #9 is the sale of U.S. gold reserves to avoid running out of cash while a new debt limit is negotiated. Option #10 is borrowing from the FED against IMF SDR assets.
Option I – The “faithful execution” argument: The President is required by the faithful execution clause and widely accepted canons of statutory interpretation to execute FY 2023 spending laws which are highly detailed and enacted more recently than the 2021 debt limit statute.
Article II of the Constitution requires the President to “take care that the Laws be faithfully executed.” The President is facing the legal quandary of whether to faithfully execute congressional appropriations enacted on 12/29/22 (Consolidated Appropriations Act, 2023, P.L. 117-328), entitlement benefits enacted as permanent law (Social Security, Medicare, Vets Compensation etc.), and interest payments due on Treasury securities — or violate these constitutional and legal responsibilities because the debt limit enacted on 12/16/21 prohibits Treasury from raising the necessary cash.
This is a statutory interpretation option i.e., does Congress intend that statutorily specific spending laws — including appropriations enacted in 2022, entitlement benefits and other mandatory spending enacted in permanent law, and payment of interest on bonds — are subject to (and legally inferior to) a debt limit set in 2021?
Widely accepted legal canons provide that laws enacted later in time prevail over prior contradictory laws, and laws that are highly specific prevail over laws that are merely general. Both of these cannons suggest that the highly detailed 2022 appropriations law trumps the debt limit enacted in 2021; and the second cannon suggests that the highly specific and permanently appropriated benefit programs like Social Security and Medicare prevail over the one sentence debt limit.
The Impoundment Control Act of 1974 (2 USC 681), which prohibits the President from failing to obligate budget authority enacted by Congress without Congress’ approval, further supports this argument. Moreover, Congress has never provided any legal mechanism for the President to withhold or prioritize congressionally enacted budget authority when a debt limit is reached. When Congress attempted in the Line Item Veto Act to give the President unilateral authority to cancel specific items of congressionally enacted budget authority, the Supreme Court struck it down 6-3 in Clinton v. City of New York, 524 U.S. 417 (1998).
Option II. Assert that the debt limit is unconstitutional under the 14th Amendment.
Section 4 of the 14th Amendment to the Constitution provides: “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.”
Advocates of this approach have argued that the bolded language above requires the Treasury to continue issuing new debt to pay bondholders, effectively overriding the debt limit law. See “Democrats press Biden to use 14th Amendment on debt ceiling,” The Hill (May 15, 2023).
Option III. Treasury issues a platinum coin to create cash reserves to fulfill financial obligations.
31 U.S.C. 5112(k) empowers the Secretary of the Treasury to “mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.” Some have argued this empowers the Secretary to issue “trillion dollar coins” which could be deposited in Treasury’s account at the Federal Reserve to create cash balances and solve the debt limit cash crunch.
However, the author of this provision, which was introduced as part of the Commemorative Coin Authorization and Reform Act of 1995 and later enacted as part of 1997 Appropriations, said the intent was to give Treasury flexibility to mint low-denomination platinum coins for collectors. (Washington Post, Jan. 4, 2013).
In 2013, when this notion was first proposed, both the Treasury and the Federal Reserve rejected it. (See Ezra Klein, Treasury: We Won’t Mint a Platinum Coin to Sidestep the Debt Ceiling, Washington Post, January 12, 2013; and then Federal Reserve Chairman Ben Bernanke, Remarks at the University of Michigan Ford School, January 14, 2013.)
In 2021, Treasury Secretary Yellen, in response to a question regarding platinum coins, stated “I believe that the only way to handle the debt ceiling is for Congress to raise it and show the world, the financial markets, and the public that we’re a country that will pay your bills when we incur them.” Testimony of Treasury Secretary Janet Yellen, House Committee on Financial Services, Federal Reserve’s Pandemic Response, 117th Cong., 1st sess., September 30, 2021.
In addition, this highly unusual maneuver to create cash balances would seriously disrupt the U.S. Treasury’s reputation for “regular and predictable debt operations,” i.e., Treasury auctions. (CRS report, R45011, 16 (Nov. 2021)
Option IV. Premium Bonds
This option would involve the Treasury issuing “premium bonds” at above-market interest rates. An example, as explained in Barron’s, is a 2-year Treasury bill trading at a 5% yield and maturing soon, could be replaced with new debt at a 10% coupon or rate, attracting a surge of investors, pushing up the price of the bond and netting Treasury more money that the original Treasury bill. Economist Paul Krugman explains that “Treasury could say that if the bond replaces an existing $1000 bond, it hasn’t increased the debt even though it’s raising a lot of money.”
There are two problems with this approach. First, it would cause instability in markets that depend on the stability of Treasury securities. Second, this debt maneuver would increase U.S. interest payments, ironically worsening the debt.
Option V. Perpetual (“consol”) bonds
A variation on the premium bonds option is Treasury issuing perpetual (“consol”) bonds. Consol bonds pay interest but do not mature. For investors, they would be similar to an annuity. Advocates of this option assert that consol bonds would not fall within the scope of the statutory limit on the debt because the government would have no legal obligation to repay the bond at any particular time.
Consols were issued by the U.S. government from 1877 to 1930. Consols existed in the United Kingdom until 2015.
Similar to the premium bonds option, the Treasury would offer high interest rates to attract investors and raise the cash necessary to cover governmental obligations.
Also, similar to the premium bonds options, consol bonds have two problems. First, it would cause instability in markets that depend on the stability of Treasury securities. Second, this debt maneuver would increase U.S. interest payments, ironically worsening the debt.
Option VI. Treasury buys back old bonds at a discount
Advocates of this approach suggest that Treasury could repurchase government bonds with comparatively low interest rates at a discount, thereby creating room under the debt limit for new auctions.
It is unclear to what extent, and for how long, this maneuver would raise cash sufficient to honor U.S. financial obligations.
Option VII. Federal Reserve Pays Remittances Early
The Federal Reserve is required to deposit in the Treasury income from interest payments on government bonds that the Fed holds on its balance sheet. These deposits are known as “remittances.” The Fed could theoretically change the timing of remittances in order to address an immediate cash crunch. It is unclear how much cash could be “advanced” to the Treasury in this manner.
Option VIII. Discharge Petition in House to force a vote on a “clean” Debt Limit Increase or Suspension
Members of the House of Representatives who want to force a vote on a “clean” debt limit increase or suspension — i.e., not tied to deep spending cuts — can employ the House discharge rule (XV, cl. 2) to discharge the measure from the Rules Committee or the Ways & Means Committee to force a House vote. According to a Congressional Research Service report, “discharge is generally the only procedure by which Members can secure consideration of a measure without cooperation from the committee of referral, or the majority-party leadership and the Committee on Rules. For this reason, discharge is designed to be difficult to accomplish and has rarely been used successfully.” According to a Brookings Institution study, “lawmakers have successfully discharged less than four percent of the 639 discharge petitions introduced since 1935.”
The difficulty with this option is that a majority vote is required on the discharge motion. In 2023, this means that all Democrats would have to support the motion, along with at least 5 Republican Members. Moreover, even if a clean debt limit increase or suspension was passed by the House, in the Senate the measure would require 60 votes in order to overcome a likely filibuster; and, if the Senate adds spending cuts to the bill, it goes back to the House where the Leadership controls whether and when the amended bill would be considered.
Option IX. Sell U.S. gold reserves to avoid running out of cash while a new debt limit is negotiated.
During the 1985 debt limit impasse, Treasury Secretary James A. Baker III told congressional leaders the Treasury may have to consider selling gold if Congress failed to raise the debt limit, as reported by the Washington Post.
Option X. Borrow from the Fed against IMF SDR assets
Special drawing rights (SDRs) are assets issued by the International Monetary Fund that can be converted into major currencies. The U.S. holds more than $150 billion worth of these assets in the Exchange Stabilization Fund. One commentator has suggested that Treasury could borrow from the Fed against these assets, a transaction that would generate cash but not count against the debt limit.