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

Charles W. Mooney, JrThere would be no reason to modify the “faith of the United StatesGovernment” aspect of subsection (a) in order to implement Alternative2. The faith of the U.S. would be unaffected inasmuch as theobligations would remain unaffected. Alternative 2 would, however,necessarily be at odds with an implicit directive to pay in subsection(a) and with subsection (b) in respect of interest payments on nonexemptedTreasuries. But as directives to pay, these provisions provideno additional content to the U.S. obligations to holders of Treasuries.The terms of the Treasuries bind the U.S. to its payment obligationsaccording to those terms. Nothing contained in section 3123makes the U.S. any more obligated. Consequently, these provisionsappear to be directives to the government and the Secretary ratherthan provisions intended to provide any additional substantive rightsto holders. 126 Under this analysis, Alternative 2 would leave the U.S.obligations to holders of Treasuries intact, notwithstanding the decisionof the executive branch to decline to pay obligations on the nonexemptedTreasuries. It recognizes the difference between authorizingthe Executive Branch to decline to pay, which would occur, andthe elimination of the obligation of the U.S. to pay, which wouldnot occur. On the other hand, it is clear enough that the Executive’s126 Section 365.30(a) of the Department of Treasury’s Uniform Offering Circularfor Treasuries provides:We will pay principal on bills, notes, and bonds on the maturity date as specifiedin the auction announcement. Interest on bills consists of the difference betweenthe discounted amount paid by the investor at original issue and the par valuewe pay to the investor at maturity. Interest on notes and bonds accrues from thedated date. Interest is payable on a semiannual basis on the interest paymentdates specified in the auction announcement through the maturity date. If anyprincipal or interest payment date is a Saturday, Sunday, or other day on whichthe Federal Reserve System is not open for business, we will make the payment(without additional interest) on the next business day. If a bond is callable, wewill pay the principal prior to maturity if we call it under its terms, which includeproviding appropriate public notice.31 C.F.R. § 356.30(a). Like section 3123(a) and (b) discussed in the text, subsection(a) would not appear to establish an independent entitlement for the holdersof Treasuries. Instead it is better seen as simply a term of the Treasuries inasmuchas the purpose of the Offering Circular is to establish the terms and conditions ofTreasuries. See 31 C.F.R. §§ 356.0 (“Chapter 31 of Title 31 of the United StatesCode authorizes the Secretary of the Treasury to issue United States obligations, andto offer them for sale with the terms and conditions that the Secretary prescribes.”);356.1 (“The provisions in this part, including the appendices, and each individualauction announcement govern the sale and issuance of marketable Treasury securitiesissued on or after March 1, 1993.”).213