Government shutdown, debt limit deal close: But what if it falls through?

Two weeks after the government shut down and just days away from letting the nation risk default, Senate leaders on Monday sounded increasingly optimistic about the prospects of a deal to reopen the government and raise the debt limit.

The White House on Monday postponed a meeting with congressional leaders, giving the Senate more time to make progress on a deal that sources tell CBS News would fund the government through Jan. 15 and raise the nation's borrowing authority through mid-February. Senate Republicans plan to meet privately Tuesday morning to discuss the plan.

It's unclear, however, whether the Republican-led House will agree to the deal currently in the works. If they don't, Congress will be left without a plan just days before the nation is expected to exhaust its borrowing authority. If Congress fails to raise the debt limit by Oct. 17, according to a Goldman-Sachs report, there could be a "rapid downturn in economic activity." The firm estimates that after just a month of breaching the debt limit, there would be a 4.2 percent drop in annualized GDP. Unemployment would rise, and Social Security checks would potentially stop going out on Nov. 1.

With so much at stake, some have argued that President Obama should ignore the debt limit, taking matters into his own hands. There are various legal justifications for the president to act unilaterally -- some point to the expansive powers that U.S. presidents have historically assumed during times of crisis. Others point to the 14th Amendment of the Constitution, which states, "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."

Others -- including the Obama administration itself -- have argued the president does not have the authority to act unilaterally and that doing so would have negative consequences.

In an Oct. 8 press briefing, Mr. Obama told reporters, "I do worry that Republicans, but also some Democrats, may think that we've got a bunch of other rabbits in our hat. There comes a point in which, if the Treasury cannot hold auctions to sell Treasury bills, we do not have enough money coming in to pay all our bills on time. It's very straightforward. And I know there's been some discussion, for example, about my powers under the 14th Amendment to go ahead and ignore the debt ceiling law. Setting aside the legal analysis, what matters is, is that if you start having a situation in which there's legal controversy about the U.S. Treasury's authority to issue debt, the damage will have been done even if that were constitutional, because people wouldn't be sure."

14th Amendment option

Yet if Congress failed to raise the debt limit by Oct. 17, acting unilaterally may be the least bad option the president has, some argue.

"In an ideal world, looking at it from the perspective of the Constitution and the type of government that the Constitution establishes, we would all be better off if Congress did its job and the president was able to do his job," Elizabeth Wydra, a constitutional expert and chief counsel of the Constitutional Accountability Center, told CBSNews.com. "The president could be put in a very difficult position where he simply can't follow all of Congress' directions at once, and given the constitutional guidance from the 14th Amendment, his least unconstitutional option would be to ignore the debt ceiling."

The 14th Amendment was passed in the aftermath of the Civil War to ensure the payments of Union debt over any objections from Southern congressmen.

"It's simply a historical fact that the framers of the 14th Amendment chose language that would protect the national debt broadly," Wydra argued. "They didn't want to focus on just Confederate debt or Union debt -- they were thinking about the general interests of the country and the importance they placed on protecting the nation's credit and withdrawing it from the power of Congress to deny it."

If the administration chose to reverse course and embrace the 14th Amendment argument, it could simply ignore the debt limit. Wydra argued, however, that this one-time action wouldn't do away with the statutory requirement for Congress to set a debt limit.

"I don't think that the framers of the 14th Amendment envisioned a lengthy period where the public debt would be questioned," she said.

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