According to Senator Chuck Schumer (D-NY), there has been private discussion of the possibility that section 4 of the 14th Amendment authorizes the President to avoid default on the government's debt in the absence of Congressional legislation to raise the debt limit. However, "It's worth exploring next time around," Schumer said. "But it hasn't been examined enough to deploy it this time."
I believe it would be wise, however, to "deploy" this idea as a more openly discussed possibility sooner rather than later to reduce financial markets anxiety and to be prepared for its actual application in the event it becomes necessary.
One problem that may be holding Sen. Schumer back is that he seems to expect the Amendment to be taken as authorization for the President to issue new debt in order to roll over the old -- and I would agree that that proposition is problematic. It is not clear that the Amendment authorizes the issuance of new debt. The sounder idea, I propose, would be to issue no new debt but to simply make scheduled debt payments by Treasury issued checks, justifying check overdrafting as being required by the 14th Amendment.
These checks would be honored by banks U.S. and foreign if they knew they would be honored when presented, in turn, to the Federal Reserve Bank. The Fed would have no choice, however, but to do so.
In the first place, the Fed as much as the President is required to uphold the Constitution. It would violate the 14th Amendment for the Fed to put in question the validity of the government's debt by refusing payments.
Secondly, it would be a global financial disaster if it refused.
Furthermore, incoming funds would be available to pay some of the debt payment checks but the Fed would have no fair way to decide which payments would be so covered and which would not. It might choose to not formally pay and collect at first only on the debt it holds itself, deeming the rest to be covered, but after that it would have to pay on it all.
Finally, extinguishing the government's debt by paying off on it with created funds is what the Fed has already been doing anyhow with "QE1" and "QE2"-- the only operational difference is that it would be paying as the debt came due instead of buying it in ahead of time.
What I am suggesting does not completely avoid a government "shutdown" since new funds above the debt limit are not borrowed to keep programs going. However, debt paid off at the Fed would permit issuing of replacement debt still under the debt limit. The procedure I am suggesting is only a way to avoid defaulting on already issued debt and to help maintain some minimal government services. The government is in too much debt. My suggestion does not solve the debt crisis -- only the default aspect of the debt limit crisis.
UPDATE: David Frum at CNN does a fine job of explaining how the President has negotiated like a chump -- and goes on to explain the "new debt issue" problem with using the 14th Amendment. Obviously he didn't read my post.