Restructuring United States Government Debt: Private Rights, Public Values, and the Constitution

47 Pages Posted: 2 Dec 2019 Last revised: 4 Dec 2019

See all articles by Edmund W. Kitch

Edmund W. Kitch

University of Virginia School of Law

Julia D. Mahoney

University of Virginia School of Law

Date Written: November 22, 2019

Abstract

Mainstream policy discussions take as given that the United States will and must pay its debts in full and on time, and that “restructuring” is legally and politically impossible. In our judgment, this assumption is unwarranted. Far from being unthinkable, under some circumstances restructuring the debt of the United States would merit serious consideration, and these circumstances may well be fast approaching. We diverge from the standard wisdom for two reasons. First, we doubt that payments on treasury obligations will necessarily take precedence over what the electorate sees as more pressing needs, including national security and price stability. In particular, we suspect voters may balk if told that holders of United States debt securities have ironclad priority over Social Security claimants and others with well-settled expectations of government benefits. Second, we think it wrong to equate restructuring with catastrophe. While we do not dismiss out of hand the dangers of not paying creditors in full and on time, we believe that—perhaps counterintuitively—the American constitutional framework could prove an asset rather than a liability when it comes to handling severe financial stress. Our conclusion on this point follows from the insight that the very dispersals of power that can fuel gridlock can also serve to enable the United States to offer credible assurances that its new financial structure will be stable going forward.

Keywords: Constitution, Debt, Default, Democracy, Gold, Hamilton, Restructure, Values, Welfare

JEL Classification: K10, K11, K12, K20, K21, K22

Suggested Citation

Kitch, Edmund W. and Mahoney, Julia D., Restructuring United States Government Debt: Private Rights, Public Values, and the Constitution (November 22, 2019). Virginia Public Law and Legal Theory Research Paper No. 2019-68; Virginia Law and Economics Research Paper No. 2019-20. Available at SSRN: https://ssrn.com/abstract=3492085

Edmund W. Kitch

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
804-924-7047 (Phone)
804-924-7536 (Fax)

Julia D. Mahoney (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
434-924-3942 (Phone)

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