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

Howell E. Jacksonand provides resources for any pending federal obligations that haveremained unpaid during the crisis. Though beyond the scope of thisessay, one might also envision a Phase Three Debt Crisis when theUnited States follows the path of Argentina and other sovereignstates that have intentionally and permanently defaulted on publicobligations. In a Phase Two Debt Crisis, in contrast, the focus ison how best to manage funding shortfalls during an undefined, butpresumably limited period, while political solutions are worked out. 4While the economic and financial implications of a Phase Two DebtCrisis would no doubt be severe, the implications are less profoundand legal framework quite different than would be the case with afully blown Phase Three Debt Crisis.59Potential Executive Responses to a Phase Two Debt CrisisFrom the extensive public debates of the Summer of 2011, as well asmore limited prior academic writing on the subject, one can distilla variety of different postures that the Executive might take withrespect to a Phase Two Debt Crisis. For ease of exegesis, I dividethem into Theories of Executive Supremacy and Systems of SpendingPrioritization.A. Theories of Executive SupremacySome academic commentators and politicians have suggested thatthe Executive retains a wide degree of latitude in determining how toproceed in the face of a Phase Two Debt Crisis, including the authorityto ignore the debt ceiling altogether. In some formulations, thesource of Executive Authority stems from the Public Debt Clause ofthe Fourteenth Amendment:“The validity of the public debt of the United States, authorizedby law, including debts incurred for payment of pensions and4 Thus conceived, Phase Two Debt Crises are similar to Phase One Debt Crises inthat the presumption in both is that government obligations will all ultimately behonored. With the Phase Two Debt Crisis, however, the government lacks expressedstatutory authority authorizing deferral. As a result, the delay of payment in PhaseTwo Debt Crises may result in additional legal liability (and costs) for the governmentbeyond the accrual of additional interest. As discussed below, this liability willvary depending on the type of government payment being deferred.