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

186 United States Sovereign Debt: A Thought Experiment On Default And Restructuringwould present a serious, if not fatal, problem. The U.S. would losethe advantage of stealth and surprise, which would disrupt the marketeven before a completed restructuring were achieved (or worse,would block the possibility of a successful restructuring).Consider some possible ways around this conundrum. The President,Treasury, and the Fed could implement the restructuring contingentupon post-hoc approval by Congress. Or, the President andCongressional Leaders could approach every member of Congressindividually and confidentially. While unanimous agreement andsupport would be unlikely, the members’ sense of patriotism andloyalty might be the basis for a pledge of strict confidentiality evenby those who were not persuaded to approve the plan. At the appropriatetime, a secret meeting of Congress could be called to approvethe plan. Or, these approaches could be combined, with the firstapproach (an implementation contingent on subsequent Congressionalapproval) followed by an immediate Congressional approvalbased on earlier one-on-one confidential meetings.The alternative approaches presented here are intended to illustrateexamples of coherent restructurings that would proceed under therule of law. If the President and Congress decide to default on thenon-exempted Treasuries, Congress could simply fail to appropriatesufficient funds and payment of Treasuries in full would be impossible.That would be simple enough. The unintentional version of thatscenario was the prospect that was the subject of so much discussionand debate during the 2011 debt ceiling impasse. In a restructuringmode, however, it would be wise for the U.S. to avoid the possibilityof legal challenges in any U.S. courts that would have jurisdictionover the U.S. But it would also be desirable for the U.S. to take anapproach that would not violate its own Constitution—whether ornot the actions could be challenged in a court of law.Alternatives 1 and 2 each might attract constitutional challenges.Depending on the terms of the Prosperity Shares, Alternative 3might not be a feasible method of restructuring. Congress couldat best hazard guesses at how legal challenges or market acceptanceof Prosperity Shares might play out. Consequently, Congress could