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

Charles W. Mooney, Jrin subpart B if the consensual bilateral or trilateral restructuring arrangementswere declined.179Bilateral negotiations would present yet another set of problems. Asa general matter it makes some sense for a distressed debtor to sitdown with major creditors to discuss the debtor’s situation, alternatives,and proposed solutions. But in the case of sovereign debt heldby other sovereigns, political issues and concerns may flow from anddominate the purely economic considerations. For example, the secondand third largest government holders of U.S. debt, Japan and theUnited Kingdom, 13 are states with which the U.S. has close ties andvery friendly relations. The largest such holder, China, 14 is a powerfulrival with which the U.S. aspires to have a stable and friendlyrelationship. 15 Would these governments view a restructuring planthat targets their holdings as a repudiation of these relationships oreven as a hostile act akin to a blockade or boycott? Of course, theidentities of the holders of U.S. Treasuries could change dramaticallyfollowing a period such as that described in the fictional scenario inPart II or under any scenario that would give rise to the need for theU.S. to restructure its debt. But the concerns as to the political effectswould be relevant regardless of the identities of the largest governmentalholders of U.S. debt.Difficulties notwithstanding, bilateral restructuring negotiations maybe the only feasible alternative. The two most attractive restructuringapproaches discussed in subpart B depend on the legal discharge andsatisfaction of a portion of non-exempted Treasury obligations or on13 See Major Holders, supra note 9.14 See id.15 One op-ed author proposed that the U.S. should abandon its alliance with Taiwanin exchange for China forgiving the U.S. debt that it holds. Paul V. Kane, ToSave our Economy, Ditch Taiwan, N.Y. Times, Nov. 10, 2011 at A35. The suggestionwas met with a flurry of on-line opposition. See, e.g., On Paul V. Kane and HisStupid Op-Ed, The China Hotline (Nov. 12, 2011), available at http://thechinahotline.wordpress.com/2011/11/12/on-paul-v-kane-and-his-stupid-op-ed/;DitchingTaiwan to save U.S. Economy will be Myopic, Naïve, Asian Conservatives (Nov. 11,2011), available at http://asianconservatives.com/economy/ditching-taiwan-tosave-u-s-economy-will-be-myopic-naive/;Joshua Keating, Decline Watch: Can wesave America by ditching Taiwan?, Passport (Nov. 11, 2011), available at http://blog.foreignpolicy.com/posts/2011/11/11/decline_watch_can_we_save_america_by_ditching_taiwan.