Constitutional Crisis 

by Richard K. Brawn, CCREA (retired), MPA | March 27, 2008

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Is preservation of personal financial benefits justification to destroy even one principle of our Constitution? This question is raising a new and much insidious fear. A realization is dawning that interests in key positions within the Executive Branch have created a constitutional crisis that will further hollow out U.S. Constitutional protections for private ownership and contract sanctity. In the post Bear Stearns period, the provisions of Article 1 Section 8 and 9 of the US Constitution mean even less now than they did before. A rational fear gathering force in the market is belief that America will not abide by its own Constitutional guarantees. If the United States of America will set aside clear principle because of fear of economic loss, what principles will stand to protect personal wealth and private property. 

A woman was recently fired from her job with the State of California for failing to sign an oath with which nearly everyone is familiar. “I will support and defend the Constitution of the United States against all enemies foreign and domestic….” She refused to sign it until the meaning could be explained to her. I do not know what the oath really would require of me and I doubt that anyone else does. So given the constitutional crisis, perhaps Congress will show us what the oath means. 

First, here are two extracts from the US Constitution that serve as the source of the consternation. I have underlined the paragraphs of interest and left some lines to provide a context. What appear to be grammatical and spelling errors are there because this is an extract of The Constitution in its original form. The only authority possessed by any governing body in the United States is that specifically granted by the Constitution. Government is denied all other powers not specifically granted. The Constitution is the people’s document, not the sole business of the legal profession, courts, interest groups or politicians; so I feel free to take the document as it is written and hope you do as well. 

Ok that is taken care of, so what does it mean to ‘support and defend the Constitution?’ 

Article 1 Section 8 (an excerpt): 

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow Money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

And

To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

Article 1 Section 9 (an excerpt):

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

Ok, now you have refreshed your memory, here is the situation. . 

Article 1 Section 8 gives Congress authority to create the Federal Reserve Bank and Federal Reserve Board which may use only the powers granted to Congress. Section 9 denies to the Congress and therefore the FED the authority to take any money from the Treasury except as allowed by a specific lawful appropriation by the whole Congress. Is it possible to mistake the meaning? All money used by government must be as a consequence of a congressional appropriation. Nowhere did the Constitution use any term other than “money” to say how governance would be funded. The Constitution makes no other statement but this one about how to handle money used to run the government.

So, what is an appropriation? That is money set aside by Congress for a specific use. The Constitution creates only one Federal government composed of three specified branches, each are separate and have separate powers. None are conjoined except for the role of the Vice President. (The Constitution also gives powers to states without specifying state government structure.) Therefore the FED must exist as a part of Congress or a part of the Executive Branch. The Constitution allows no other possibility. But, such details have not seemed to hamper politicians. So today, we have money that funds government and is not appropriated and we have an entity of governance combining powers of two separate branches of the Federal government. 

The term, non-appropriated funds, has been manufactured to address secondary funds within the government. Those are funds collected as a byproduct of government activities such as sale of surplus property. For some reason, despite the Constitutional clarity on control of government money, these government funds are not subject to Article 1 Section 8. Lo and behold, an extra-Constitutional entity was created along with two ‘Treasuries” from which funds can be drawn, plus a convenient precedent. How did this happen? In part, this was the result of the natural inclination of people in politics to find the easiest solution regardless of principles. But this inclination has been backstopped by some judges who believe the Constitution is a “living document.” Somehow the black robes gave them god-like powers not unlike the Egyptian Pharaoh adorned with the image of Re. This hubris is a vice and it has consequences that now infect the financial markets. 

The FED guarantee to make good on any losses Bear Stearns may incur for Morgan provides money without an appropriation. I suppose it could be argued that the extra-Constitutional existence of non-appropriated funds serves as a legal principle that allows the FED to do with Federal Reserve Notes as it sees fit. Until the Congress gets into the act perhaps anything can be done with this ‘money’. But the web of deceit that creates this fiction also provides for the casual assumption of rights not given to government by the Constitution. Of course this is my view; and, you can form your own opinion that is why I included pertinent passages from the Constitution. And from this, we have a further widening of an ‘original sin’ of knowingly violating the Constitution. With the Bear Stearns/JP Morgan agreements, we see plainly that no Congressional appropriation was made. As of this writing, the Secretary of the Treasury speaking before the Chamber of Commerce confirmed that FED has expanded the giveaway of government funds to include financial guarantees to a private entity for privately issued collateral. The gauntlet has been thrown. (Also see March 27, 2008 WSJ front page article: “Ten Days That Changed Capitalism.”) 

Since the President and Secretary of the Treasury are part of this ‘Bear Stearns Agreement,’ the violation has to be called a crisis. The Executive has declared unto itself the power to commit money without the Congressional Appropriation required by the Constitution. In summary, we have the Federal Reserve Board, the Secretary of Treasury and the President all knowingly in violation of Article 1, Section 9 of the US Constitution. Congress must now stand up for the prerogatives authorized by the Constitution to the Congress alone. The Attorney General will perhaps have the unpleasant task of bringing before the courts, the entire Federal Reserve Board. Pandora could not have conceived of a greater mess to seal in her box. With such a clear cut case and defendants with such deep pockets, oh, to be Counsel for the Bear Stearns plaintiffs!! 

Congressman Barney Frank and Senator Chris Dodd are chairmen of the respective House and Senate committees with pertinent oversight. They, like many of us, have taken the oath to support and defend the Constitution. So we are about to find out what that oath means! On the other hand, perhaps all of us should recall the famous phrase: “Maybe if I close My Eyes, It Will Go Away.” My guess is that Congress must be in no mood to bother with anything as insignificant as the Constitution during an election. I suppose political reality is that nobody really wants to get into enforcement of Constitutional Principle. The easy way out is to see nothing wrong in order to justify failure to act. Loudly voicing a claim to uphold, and defend the Constitution surely replaces any need to actually do something that may be painful. After all we do vote! We have the Armed Forces! Isn’t that enough? 

So, if it is not the business of Congress or the President to uphold the Constitution, then surely it is not our responsibility either, right? Should we try to explain to the lady in California who was fired that she was way out of line with the value she placed on her commitments? The oath is nothing more significant than chest beating. By-the-way… the lady was not a hot-blooded, flag waver, or a left winger either. She described herself as being simply a Quaker. 

Let’s Summarize: 

FRB Notes are indirectly underwritten by the ability of the government to tax. Taxation is exclusively a Congressional power. 

The Constitution does not provide any way of dispensing money for governance other than by appropriation. 

The Constitution intends separate branches of government and forbids taking of any power not provided in the Constitution. The Constitution gives no grant of power to combine separate branches of the government.

If the Federal Reserve Bank is not a constitutional entity, then what is the status of the FRB Notes it produces?

Without a doubt, this crisis that I am addressing is a ‘non-event’ for Congress. No doubt, the Gordian knot will be cleanly cut the way it is done in Washington DC. I can imagine several appealing cleaver swings. Perhaps no violation has occurred because the power of Congress to coin money was given to the Federal Reserve Bank as a sort of off-the-Constitutional Balance sheet operation allowed by the Office of Constitutional Review (otherwise called the Supreme Court.) Perhaps 50 years of governance outside certain Constitutional provisions has rendered those principles invalid or moot. Perhaps no technical violation can exist because the Federal Reserve Bank creates the non-appropriated dollars for Congress and the term, appropriation, applies only after the money is given to government by the FRB. Perhaps no technical violation is possible because dollars are printed, not coined. Or maybe FRB notes are not ‘money’ after all. 

Before we get our knickers in a knot, let’s have some confidence in our politicians! They are professionals and will surely find a fiction that will sound good and the crisis will evaporate. But the events have uncovered how destitute of treasure the “Treasury of the United States” really is. And second, they have been provided an awful lot of evidence of the willingness of office holders in all three branches of government to forsake their oath “…to support and defend the Constitution….” 

Copyright © 2008 Richard K. Brawn
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Richard K. Brawn, CCGA, MPA | Petaluma, CA USA | Email
Coalition of Commercial Real Estate Associations (CCREA) retired | Master Public Administration (MPA)

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