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

190 United States Sovereign Debt: A Thought Experiment On Default And Restructuringthorize the issue of definite obligations for the payment of moneyborrowed, the Congress has not been vested with authority to alteror destroy those obligations.” 36 The following discussion refers to thisprinciple as the “non-abrogation principle.” The Court further observedthat “Congress was without power to reduce expenditures byabrogating contractual obligations” even in the face of a “great needof economy” and “widespread distress.” 37While the use of language in Perry’s plurality opinion as to the unconstitutionalityof the Joint Resolution is quite clear, the actualholding of the case is quite astonishing. With reasoning that has beendescribed as “baffling” 38 and “convoluted and suspect,” 39 the Courtheld that Perry was entitled to receive only the face amount of thebond in dollars and not in gold coin. The Court’s holding left Perry inexactly the same position as would have been the case had the Courtheld the abrogation of gold clauses in U.S. bonds to be constitutional.Kenneth Dam explained the reasoning of the plurality opinion: 40[T]he Court nonetheless relegated the holder of the governmentbond to receiving merely the face amount of $ 10,000 in legaltender currency. The Court reasoned that unlike the post-CivilWar period, when coin and paper money floated in the marketplaceat prices determined by supply and demand, the period ofthe Gold Clause Cases had a “single monetary system with anestablished parity of all currency and coins.”[ 41 ] Even under the36 Id. at 353; see also Id. at 352-53 (Congress “was without power to reduce expendituresby abrogating contractual obligations of the United States. To abrogatecontracts, in the attempt to lessen government expenditure, would be not the practiceof economy, but an act of repudiation.”) (quoting Lynch v. U.S., 292 U.S. 571,580 (1934)).37 Id. at 352. While the Court held the government’s modification of its obligationsto be unconstitutional, it is noteworthy that “the Perry Court appeared determinednot to upset governmental policy and ultimately did not award Perry damages.”Abramowicz, supra note 27, at 603.38 Henry Hart, The Gold Clause in United States Bonds, 48 Harv. L. Rev. 1057(1935).39 Dam, supra note 28, at 517. Dam virtually destroys the factual underpinnings ofthe plurality opinion that the gold clauses interfered with the federal government’spower over money and that enforcing the clauses would cause a dislocation of theeconomy. Id. at 518-525.40 Id. at 517 (footnotes omitted).41 Quoting from Perry, 294 U.S. at 357.