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

238 A Comment on Professor Mooney’s Thought Experiment: Can U.S. Debt Be Restructured?do. The need for speed means that the restructuring method mustbypass obtaining consents from the holders of the debt, even if aneffective means of soliciting such consents could be devised. Anyconsensual restructuring faces the problem of “holdouts,” and thereis every reason to believe that many of the holders of cash-equivalentinstruments like U.S. treasury securities will have little appetite toparticipate voluntarily in a debt restructuring.Professor Mooney, seeking to bind the holders of U.S. debt to aspeedy non-consensual restructuring that overcomes the constraintsof the Fourteenth Amendment, suggests that the “bankruptcy clause”of Article I, Section 8, of the United States Constitution might providethe necessary authority for the federal government to repudiate(or in bankruptcy parlance “discharge”) a portion of the principalobligations on its public debts. He acknowledges that this idea has itsweaknesses and explores a second, alternative restructuring method:simply defaulting on the debt rather than repudiating it.At least on its face, the Fourteenth Amendment seems to make apartial or complete debt repudiation by the United States extremelyproblematic. 2 Professor Mooney posits, however, that the overridingpower to modify indebtedness under the bankruptcy clause ofthe Constitution might extend to all debtors, including the UnitedStates. As we know from Chapter 9 of the federal Bankruptcy Code,governmental units, like states and municipalities, can go bankrupt– if they consent to doing so. Why shouldn’t the same apply to theUnited States itself?Invoking the bankruptcy clause, of course, does not end the discussionbecause doing so merely creates a conflict between two competingconstitutional provisions. Professor Mooney resolves this conflictin favor of the bankruptcy clause because the Fourteenth Amendmentonly bars questioning the validity of the public debt of theUnited States, and it is indisputably true that a debt can be valid butnevertheless be rendered unenforceable by bankruptcy. In fact, that2 While, as Professor Mooney points out, the Supreme Court, in Perry v. UnitedStates, 294 U.S. 330 (1935), allowed the U.S. to refuse to honor the “gold clause,” ifthe U.S. had sought to walk away from the debts themselves the result presumablywould have been different.