A “failed” Treasury action. Birthright comes to the Court

A “failed” Treasury action. Birthright comes to the Court

A “failed” Treasury auction

We just had a failed Treasury auction.  The Treasury has specific financing needs and hopes to sell its securities at a high price which translates into a low interest rate. A failed auction is not one when the Treasury cannot sell all its securities but when the sale is at prices lower than anticipated making interest rates higher than the Treasury would like. Failed auctions seemed to be getting more frequent as the markets start to reach a saturation point for Treasury securities used to finance the debt. Another reason for a failed auction is an increase in inflationary expectations where buyers demand higher yields to protect their real returns.

A case in point was the latest auction of 2 year Treasurys. The Treasury had to raise $70 billion and it did so but at lower prices and higher yields than it wanted. The latest auction resulted in yields climbing 9.6 basis points to 3.926%, the highest yield in eight months. Trump of course wants Treasury yields down, lowering the cost of financing the debt, but his policies are making the opposite happen. First, the tariffs resulted in inflationary expectations rising, creating higher yields and not this first auction. His war on Iran pushed rates even higher. The market is saying that increased energy prices resulting from the war will translate into higher inflation. In order to preserve their real rates of return on the Treasurys, the market demands higher yields.

The next auction is a $70 billion 5 year Treasury auction. It will be interesting to see what happens then. I expect another failed auction and higher rates on the five year Treasurys. All total the Treasury has $10 trillion in debt coming due next year. Again , it will be able to refinance the debt but at what price?

Birthright citizenship

On the Supreme Courts’ docket is Trump’s challenge to birthright citizenship. I am not going to go into great detail again but at its core is the 14^th Amendment which conveys citizenship to everyone born in this country except the children of diplomats. The amendment says “All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States.” On his first day in office during this term, Trump issued an executive order saying that the government would not recognize as citizens children born here if a parent were not a citizen or a lawful permanent resident. He was immediately sued – and lost. Thus, far in challenges to the executive order, Trump has lost each time in six lower courts, regardless of the judges’ ideology. A Reagan-appointed judge said I can’t remember another case where the question presented is as clear as this one Is. This is a blatantly unconstitutional order.”

I expect that the court will rule unanimously against Trump. But I can be wrong. There is no doubt that the three liberals on the court (Kagan, Sotomayor and Brown Jackson) will be opposed but indications are that given rulings in the past the other justices will also. Nevertheless, I have been wrong before. Recall that Thomas, Alito and Kavanaugh voted to keep Trump’s tariffs in direct conflict to earlier rulings where they defended the major questions doctrine. That doctrine says that when the executive branch seeks to wield significant regulatory power, it must first point to an unambiguous delegation of such power by Congress to the executive. In the case of the 14^thAmendment if the so-called conservative members of the court are consistent, they will vote against Trump’s executive order. 

Of course, Trump will have a cow. On fact he has had enough cows to have an entire herd – which would help in the beef shortage. He has harangued against the court rulings against his wishes to expand the power of the executive and was particularly spiteful in the tariff ruling. He then said “They sicken me, because they’re bad for our country.” Trump is expecting to lose here too as he said the court “will find a way to come to the wrong conclusion” on birthright citizenship—an outcome, he said, that other nations would celebrate.

Of course, all eyes will be on Clarence Thomas the descendant of slaves who – like mine – were given citizenship by the 14^th Amendment. In a 2022 case about federal benefits for Puerto Rico residents, Thomas argued that the citizenship clause promises equal protection for all citizens. Though birthright citizenship wasn’t the main issue in the case, Thomas would have understood the implications of his argument on future litigation over the birthright issue.

Regarding the major questions doctrine, it seems clear that on that basis the court should rule unanimously against Trump. The president has argued that birthright citizenship was meant only to give citizenship to the ex-slaves and their children and not to illegal immigrants. He is wrong. If the congress had wanted that to be so, then it would have written it into the amendment. It chose not to do so. debate on the 14^th Amendment, Senator Edgar Cowan (R-PA) said “Is it proposed that the people of California are to remain quiescent while they are overrun by a flood of immigration of the Mongol race? Are they to be immigrated out of house and home by Chinese?” Doesn’t that sound like Stephen Miller? But the Senate in a way agreed with Cowan that the result would be that those (Mongol) children born here would indeed be citizens and should be. Here is what Sen. John Conness (R–CA) replied “I beg my honorable friend from Pennsylvania to give himself no further trouble on account of the Chinese in California or on the Pacific coast. We are entirely ready to accept the provision proposed in this constitutional amendment, that the children born here of Mongolian parents shall be declared by the Constitution of the United States to be entitled to civil rights and to equal protection before the law with others.”

So Trump is wrong (again).