No one at the American Monetary Association is silly enough to claim that the whole idea of a debt ceiling deadline is a mirage. Of course it's not. At some point the politicians in Washington are going to have to agree to serious budget cuts or the entire country faces the prospect of not being able to pay our financial obligations. But is August 2 the REAL final drop dead date as the Democrats led by President Obama and Senator Harry Reid like to keep saying?

There are more than a few voices crying in the mainstream and alternative media wilderness that the particular date just mentioned was more of a random number drawn out of the air meant to terrify the American public and coerce Republican lawmakers into signing onto a deal.

First, a little background for those few people who, like the Geico commercial says, have been living under a rock for the past few years. What is the debt ceiling anyway and why should you care about it? The debt limit is a federal law that caps how much debt the government can take on in the form of borrowing. In the event the ceiling is reached, there can be no more actions taken that result in any more borrowing or spending until the limit is raised or expenses reduced. This means that the Borrower-in-Chief cannot continue down his wildly irresponsible borrowing and spending path. As has been characterized in the media, government activity would grind to a halt.

The worst case scenario: federal employees, including soldiers don't get their paychecks; neither do Social Security recipients; Medicare benefits are unfunded. The even bigger picture problem with hitting the debt ceiling is that the government can no longer make interest payments on money it has borrowed, which would damage it's credit rating. As the world's reserve currency, the US Would be feeling the effects of a credit downgrade for a long time.

FYI: Lawmakers have raised the national debt ceiling 74 times since 1962, so, unfortunately, many politicians and citizens have come to view it as a fait accompli that we can do so in perpetuity. However, with many realists in Congress convinced we are headed for another Great Depression or worse, and that the problem can be directly traced to a history of foolhardy borrowing, they have decided that now is as good a time as any to draw a line in the sand.

So the debt ceiling deadline is a dig deal. Whether August 2 is the actual date or not is up for debate. Earlier in the year, we were told that May 16 was the debt ceiling deadline, but then Treasury Secretary Timothy Geithner tinkered with the accounting books for a while and discovered that August 2 was the actual debt deadline.

On a recent radio broadcast, conservative talk show host Sean Hannity postulated his belief that the government could function past that date, though in a diminished capacity, from current tax revenues, which he estimated at $200 billion monthly. Hannity went on to say that should be enough to pay Social Security recipients, Medicare benefits, the military, and service interest debt. Hannity's theory is that the August 2 debt deadline is only an artificial line established by the Obama White House to bring conservatives in Congress back to the bargaining table quickly.

The United States has never before in history defaulted on debt payments, though three different times (in 1790, 1933, and 1979) did re-structure some debt or made interest payments late. An interesting theory about an alternative to worrying about raising the debt ceiling comes from Bruce Bartlett of the Financial Times. Mr. Bartlett – after a careful reading of the 14th Amendment, we presume – suggests that the president has the authority to ignore the dead ceiling limit altogether.

Interesting.

Here's the wording Bartlett relies on, taken directly from section four of the amendment in question.

“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.”

Bartlett believes it is within these words that the president is granted the constitutional authority to take whatever measures necessary to protect public credit and prevent a national debt default, even if it means ignoring the debt limit ceiling law. If President Obama were to take such an extraordinary step, hold onto your hats, folks, 'cause it could get mighty interesting around here. There would surely be a hue and cry from certain quarters and cries of “Unconstitutional!” But who would have standing to bring a lawsuit? We can't imagine the Justice or Treasury Department filing suit in the Supreme Court. The Congress as a whole would have to do that and, with the Democrat party in charge in the Senate, there's little chance of that.

The American Monetary Association Team

(Flickr / osipowa)