I’ve been having a debate on Twitter with a guy who admittedly has more authority than I do on this subject, since he’s a lawyer and I didn’t even go to college. But he is just one guy and it’s not his specialty, so I figured I’d submit this to SDMB. Can the US just decide to repudiate debt? I had been under the impression this was constitutionally illegal as stated in the 14th amendment. I’m sure temporary default is possible simply because it’s theoretically possible for the government to not have the cash on hand to make payments on time. But intentional repudiation sounds legally questionable to me. I recall there being some debate on this very subject during the 2011 debt ceiling debate, but I don’t recall it being definitely settled. What say you?
If it comes down to it, the worst case scenario is making new dollars to pay the debt rather than defaulting.
That’s what I figure, but this guy wants to avoid negative consequences of debt, but it seems to me that repudiation of debt carries even more negative consequences than inflation, even if it’s legal. US assets abroad would be seized, we wouldn’t be able to issue new debt to fund current spending, and all the pension funds would crash because they are heavily invested in US debt whose value would drop by like 90% overnight.
But that’s a policy question. I want to know if it’s legal. I’d been under the impression that our debt was an ironclad guarantee barring actual shortage of money due to some calamity. Not something we could just decide, “you know what, we don’t feel like paying certain creditors back”. Such as China.
How does this fellow respond to the 14th Amendment argument?
That the repudiation isn’t questioning the validity of a debt. It’s just refusing to pay it. I do agree that clause could have been written better. It reads almost as a 1st amendment limitation rather than something that actually binds Congress.
“Repudiating” debt is essentially bankruptcy. No one could stop the USA from doing this, but it would ruin the country’s credit. No external party would lend it money, and even its own citizenry would either not buy government investment instruments or would need very, very high interest rates to do so if they bothered at all. Private businesses would be leery of working for the government.
Is it legal? It can be; legalities are just words, and you can always write the correct words. Section 4 of the Fourteenth Amendment can be repealed, or superseded by another amendment.
Do you know him outside of Twitter? if not, he may not have more authority than you on the subject.
It’s hard to see how the government could refuse to pay a debt without repudiating the validity of the debt.
The national debt is big. But it’s not like we don’t have the money. So it would be a voluntary refusal to pay rather than an inability to pay. And you don’t get to declare bankruptcy just because you want to keep your money.
So it would be illegal. But that brings it to the next level. When you or I do something illegal, the government stops us. When the government does something illegal, who stops them?
In this case, the holder of the repudiated debt could go to courts, and 100% chance they will win.
Yeah, I brought up these points but he wasn’t buying any of it. But it sounds like the consensus here is that the US debt is very binding. I guess Congress has ways around paying the debt(tax Treasuries into worthlessness), but extreme methods like that don’t actually solve the problems that would lead Congress to consider such measures, such as an imminent cash flow crisis. The only recourse would probably be the trillion dollar coin.
To further add to the insanity, he argued that we can just repudiate SOME debt. Like say the debts to China and Saudi Arabia. Foreign policy consequences and legality aside, all repudiating debt to certain foreign nations does is make the price of treasuries crash, because we don’t actually know which notes those governments hold, so they’d just sell them at a discount, which would cause the whole bond market to nosedive, which causes pension funds and 401ks to nosedive, which in turn causes a failure at the next treasury auction since many foreign governments and companies would stay away.
You are arguing with an idiot.
Does he really think anyone in America would buy government notes after the government repudiated them? Even if the government only repudiated foreign-owned notes?
I recall some arguing that defaulting on U.S. debt (rather than “printing dollars”) might be a way to avoid inflation and weakening the dollar. Among the advocates of that was a Very Influential Person (though apparently, after consulting with his nannies, he’s since rolled back that idea.)
Who would benefit if the US defaulted on debts foreign and domestic, lost all creditworthiness, and the economy crashed?
People that have negative net worth, but still access to plenty of real assets, such as valuable land and improvements.
I once worked with the wife of Brazilian jazz guitarist Bola Sete (Seventh Ball, same as Eight-Ball in US pool). (Her career goal was sainthood. Back to Bola.) He came to the States after hyperinflation left local workers carrying home their morning and afternoon wages in wheelbarrows filled with banknotes, Spend any note as soon as you get it because in a half-hour it’ll be worth a tenth as much.
The rich stayed rich, the poor got poorer, and the nation didn’t collapse, but any who could, left. That may be close to the East German experience: “They pretend to pay us and we pretend to work.” The poor stay poor and pregnant, no matter what.
So I guess the question is about the 14th amendment. Which says in Section 4:
“The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States…”
The original intent of this was pretty obviously to establish that all states in the post ACW US were responsible for Union debt incurred during that war, while no state or the US collectively was responsible for CSA debt, which was thereby constitutionally declared worthless.
A literal non-original intent interpretation could just lift “The validity of the public debt of the United States shall not be questioned” out of context and say it was a legal prohibition against default in any context. And a ‘living document’ interpretation could say…well anything, as is the nature of the ‘living document’ approach to the US constitution generally.
But it’s entirely plausible IMO that a conservative majority US Supreme Court could find that that clause wasn’t relevant to a default which had nothing to do with the concept of debt taken on by only some states during a civil war. Or another political composition of USSC could find otherwise. Like all kinds of other stuff internet constitutional lawyers find absolutely ‘constitutional’ or ‘unconstitutional’ that actually just depends on the prevailing legal philosophy on the court, and often public opinion pressure on the court plays a role too, as much as the justices deny that to their dying breaths.
And that’s even aside from the gray area between ‘policy’ and ‘legal’ where the govt does something to effectively default on the debt but claims the action did not ‘question the validity’ of the debt. Admitting that a debt was ‘validly’ incurred and paying it off under the original terms (of interest rate and maturity date) are not the same thing, or again subject to a USSC of a composition which would reach such a finding, it’s not obvious on its face.
I’m not saying that a US default is either desirable or likely. But the idea that it somehow can’t happen because of the constitution is dubious.
Sure, if we are willing to ignore the plain language meaning of the Constitution and laws, many things are possible.
I mean, I can put together an argument that if I kill (insert name of some very odious person) I shouldn’t be subjected to murder charges because that person is so bad he shouldn’t be considered a human. And if some crack pot judge agrees that the person doesn’t qualify as a human, I’m home free. It’s not like the US hasn’t tinkered with the definition of human before.
But clearly, that would be a perversion of the plain meaning of the law, don’t you agree?
I assume directed at my previous post. I would just reiterate what I said. An approach which takes a partial quote out of context of the original intent, as in “The validity of the public debt of the United States… [let’s forget what was in here pointing especially to Union ACW debt]… shall not be questioned. …[let’s forget the contrast to CSA debt following]” could find that ‘the plain language’ prohibits a default, once they had also found that not paying debt in full on time at the original interest rate necessarily meant ‘the validity of the debt was being questioned’.
But an original intent approach could find that the context was critical. The intent at the time was to make clear that both pre-ACW US debt and debt incurred by the Union during that war was also the responsibility of states readmitted to the Union, while Confederate debt was nobody’s responsibility. Therefore, they could find, the clause can’t be abbreviated out of context and applied in a completely different context.
And again it could be found that it wasn’t necessarily ‘questioning the validity of the debt’ to say that eg. overriding public interest meant that ‘fat cat’ large domestic and foreign holders of 10% treasuries maturing next year (a future hypothetical, obviously interest rates are much lower now) had to accept in exchange 4% bonds maturing in 10 yrs. When countries have defaulted, this is generally how they do it. They don’t say ‘sorry, who are you? we don’t owe you anything!’ It’s generally a forced exchange for bonds of lesser value, which the rating agencies deem to be a default, ie. change the rating on those bonds to ‘D’.
Which of those arguments do I agree with? It’s not that relevant IMO. What matters is that a court could easily find one or both the latter things, that the context of the 14th amendment statement was about whether the former CSA states were responsible for US debt before and during their secession so it can’t be applied in a totally different context to say Congress can’t decide to default; and/or, related, that a particular event of default (according to Moodys, S&P etc, where holders do indeed get back less than they were promised), does not necessarily constitute ‘questioning the validity of the debt’.
It’s entirely different that a simple universally agreed moral principle written into law like a murder statute, a weak analogy IMO.
Can you name any legal scholars who agree with your assertion that the context of the 14th Amendment could allow the United States to pay back less than promised on legally issued bonds?