US Government Debt Different - Finance Department - University of ...

Charles W. Mooney, JrSecond, would any type of material restructuring of U.S. debt involvinga material haircut of principal be feasible? This essay directlyaddresses this question. Part III examines the informational, logistical,and legal impediments to effecting any restructuring of thetype considered here. To my knowledge, this specific topic of thefeasibility of a restructuring of U.S. Treasury obligations and the issuesthat it raises largely have been unexplored in the literature. Ofcourse, I must concede that it is possible that behind closed doors atthe Department of Treasury and within the Federal Reserve System(Fed) the relevant issues have been pondered and analyzed in depth.For obvious reasons, such investigations, even if purely theoretical,would not be made public as they might trigger a crisis of confidencein the dollar and U.S. Treasuries. It is one thing for pointy-headedacademics to offer thoughts on the subject and quite another for theU.S. and its central bankers to indicate that they may see default andrestructuring as a real possibility. But I suspect that no such investigationshave taken place. The statements and behavior of Treasuryand the Fed during the period of 2007 to 2009 appear to reflect aclassic case of denial. Exploring a U.S. default or restructuring wouldbe much out of their institutional character. For that reason, I offerthis essay as a modest initial step toward the needed investigationand analysis.171II. Imagining the (Im)Possible: A Journey Forward in Time anda Doomsday Scenario.The following scenario taking place in the year 2018 is fiction. 4Whether it is possible, I leave to others. It is inspired by the veryreal notion that if we are worrying only about what we believe ispossible, we are almost surely missing something important. Almosttwo decades ago, I offered similar musings about attempting to anticipateand predict future developments in information technology.Consider the following (necessarily dated) passage:[T]he Frequent Change and Unpredictability attributes 5 alsoare apt descriptions of the financial markets generally in recent4 It is not yet 2018.5 These attributes are a part of a taxonomy of attributes of information technologywhich I explored.