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

Charles W. Mooney, JrThe government thus may not acknowledge that the public debtexists but refuse to pay it. If the government fails to make a debtpayment, the debt instrument is at least temporarily invalid forlegal purposes. Moreover, there is no such thing as a valid debtthat will nonetheless not be honored; a debt cannot be called‘valid’ if existing laws will cause default on it. So as soon as Congresspasses a statute that will lead to default in the absence of achange of course, the debt is invalid (or at least of questionablevalidity) and Congress has violated the original meaning of [SectionFour]. 109207By conflating default with invalidity, the argument misses the pointthat a default can occur only with respect to valid debt. If putativedebt is invalid it is not debt of a putative debtor and no defaultcan occur. Under Alternative 2, the legal entitlements of holders ofnon-exempted Treasuries are unaffected. But Abramowicz’s vision ofdefault as invalidity clearly would consider Alternative 2 (and Alternative1, of course) to be a violation of Section Four. Michael Sternalso has taken strong exception to Abramowicz’s suggestion that thethreat of default would question the validity of the public debt. 110Abramowicz’s more recent piece provides more detail on his views onvalidity. According to Abramowicz, Section Four:does not distinguish debts that are invalid for all practical purposesfrom debts that the law explicitly brands as invalid. The109 Id. (footnotes omitted).110 Michael Stern, “Arrest Me: I Question the Validity of the Public Debt,” Pointof Order (June 2, 2011), http://www.pointoforder.com/2011/06/02/arrest-me-iquestion-the-validity-of-the-public-debt/:I think Abramowicz’s argument here is weak. If the framers of the FourteenthAmendment wanted to say that the government should take no action that wouldjeopardize the repayment of debt, surely there were more straightforward waysof saying so. . . . . If I conduct my financial affairs in such a way as to make itunlikely or impossible that I can repay all my creditors, I am acting irresponsibly,but I am not questioning the validity of my debts. Even a failure to pay a debt,if caused by inability rather than refusal to pay, cannot be said to question thedebt’s validity.”Stern does not explain his claim that refusal to pay a debt does question the debt’svalidity. In that sense, he joins Abramowicz in conflating validity with default.