[blake1]

The treasury would auction off securities—probably short term bills—in excess of the debt ceiling. I am confident that this auction would succeed, in that dealers would be happy to bid, possibly at high yield. The settlement process following this auction has the Treasury and the dealers both sending out instructions on FedWire to transfer the bill to the dealer and the cash to the Treasury account.

The Fed’s conundrum is: do they possibly break the law, or do they certainly destroy the economy? I am supremely confident they will not destroy the economy. They’ve done gray-area actions to prevent economic catastrophe before. So the settlement will take place, Treasury will have cash, and everyone’s happy.

Then what? A lawsuit I presume, but who would sue the Treasury, and under legal theory? Not a lawyer, but I think you need to show injury to have standing to bring a case. But a case of this magnitude would be decided on political calculations as much as legal principles, and I cannot imagine the Supreme Court wants to be the party clearly responsible for world economic chaos.

And what kind of order could the Supreme Court issue? It would be weeks after the fact—maybe months. Some sort of unwind of the treasury auction, where the dealers put the bills back. (The bills might be expired though.) That would not solve a damn thing, because of the debt ceiling: there will be no money, and no way to raise any, to return to the dealers. I cannot overstate how damaging any such attempt to take back debt would be. This is similar to the collapse of a big bank or exchange, but orders of magnitude more so.

So since there really is not an effective legal remedy available to the court, why would they issue such an impossibility? I think the court will find a way to make the administration look bad, sure, but why would any court force a constitutional crisis? They are in a sense the weakest branch, especially in an emergency situation.