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

Charles W. Mooney, Jrcould be achieved through certification of exemptions, thereby overcomingthe anonymous intermediated holding structure for Treasuries.It also explained how Treasuries could be partially replaced orsupplemented by Prosperity Shares, either on a unilateral or voluntaryexchange basis. This subpart focuses on examples of legal issuesand impediments that would attend a restructuring along the linespresented in subpart B.1851. Legal and Constitutional Authority and Power to Defaultand Restructure U.S. Debt.A default and restructuring of Treasuries as contemplated here wouldrequire the Department of Treasury and the Fed to work in tandemto achieve the restructuring. But none of Treasury, the Fed, or thePresident would have the inherent power to default on U.S. debt ona discretionary basis. Treasuries are issued pursuant to statutory authorityand statutorily authorized regulations. Only Congress wouldhave the power to authorize the Executive Branch to default on (i.e.,to refuse to pay) Treasuries. 22 This would likely be the chief legal(much less, political) impediment to a restructuring of Treasuries.Even if the requisite majorities in Congress could be persuaded onthe merits to approve such a default, the process of debate and negotiationwould be messy. Moreover, the public nature of the process22 Section 365.33 of the Department of Treasury’s Uniform Offering Circular forTreasuries is captioned “Does the Treasury have any discretion in the auction process?”31 C.F.R. § 356.33. Section 365.33(c) provides, “We reserve the right tomodify the terms and conditions of new securities and to depart from the customarypattern of securities offerings at any time.” It was suggested at the Conference thatunder this provision, Treasury could change the terms and conditions of issued andoutstanding Treasuries. However, I believe the correct reading is that the provisionrefers to the terms of the new securities being auctioned. For purposes of the legalanalysis presented here I disregard the possibility that the President has the unilateralpower under current law to order a default, even in the face of the posited economiccrisis. By way of analogy, I note that during the public debates about raising thedebt ceiling in 2011 some argued that the President had the power to borrow inexcess of the debt ceiling even without the approval of Congress. See, e.g., Eric A.Posner & Adrian Vermeule, Obama Should Raise the Debt Ceiling on His Own, TheOpinion Pages (July 22, 2011), available at http://www.nytimes.com/2011/07/22/opinion/22posner.html. Also, I recognize that in such a crisis the President mightorder a default and that such an action might not present a justiciable issue. Nonetheless,the analysis proceeds on the more cautions assumption that Congressionalapproval would be necessary to effect a default and debt restructuring.