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

50 Origins of the Fiscal ConstitutionWar debt. Beyond prohibiting the actual repudiation of the publicdebt, it is not clear exactly what it means, and how it would be enforced.Default is not the same as repudiation. If Congress repudiatedthe debt, it would be declaring that the debt is not owed. If Congressdefaulted on the debt, the debt would still be owed; it wouldsimply go (in part) unpaid. The Supreme Court has interpreted theprovision only once, in Perry v. United States 2 , the so-called GoldClause Cases. The Court allowed Congress to renege on its contractualagreement to pay the debt in gold; this is when U.S. public debtbecame denominated in dollars. Effectively, this means that even ifSection Four forbids Congress to declare a formal default, it couldaccomplish much the same thing by inflating the debt away.During the debt-ceiling standoff, some commentators suggested thatSection Four renders the debt ceiling unconstitutional, on the theorythat because the debt ceiling creates the possibility of a default, it isunconstitutional. 3 This is a highly implausible interpretation – evenassuming, which is far from clear, that a default would be unconstitutionalin some sense. The debt ceiling does not limit the executive’sability to borrow; it is the top end of Congress’s past authorizationfor the executive to borrow. Only Congress can authorize borrowing,and doing so requires an affirmative legislative act. It makes no moresense to say that Congress’s decision to cap the amount to borrow isunconstitutional than to say that Congress’s decision to cap the ratesof taxation is unconstitutional. If anything, the language of SectionFour reaffirms that the public debt of the United States is valid onlyinsofar as it is “authorized by law,” which means by act of Congress.Any borrowing above the amount authorized by law would not bepart of the “valid” public debt.In any event, hitting the debt ceiling is not the same as default. Evenin the unlikely event that the political stand-off were not resolved,the Treasury would have more than enough money in new tax revenueto pay off principal and interest when due, as well as pensions.2 294 U.S. 330 (1935).3 See, e.g., Garrett Epps, The Speech Obama Could Give: “The ConstituionForbids Default,” The Atlantic, April 28, 2011, http://www.theatlantic.com/politics/archive/2011/04/the-speech-obama-could-give-the-constitution-forbidsdefault/237977/.