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This chapter adopts the working assumption that it is conceivable that at some time in the future it would be in the interest of the United States to restructure its sovereign debt (i.e., to reduce the principal amount). It addresses in particular U.S. Treasury Securities. The chapter first provides an overview of the intermediated, tiered holding system for book-entry Treasuries. For the first time the chapter then explores whether and how—logistically and legally—such a restructuring could be effected. It posits the sort of dire scenario that might make such a restructuring advantageous. It then outlines a novel scheme of exemptions and certifications that would enable the U.S. to selectively default as to only some of its debt owed to certain holders—this, even though the U.S. cannot actually know who holds the vast majority of its Treasury Securities. Next, the chapter outlines three alternative approaches to a restructuring. Under two of the approaches a fraction of the debt would be replaced by “Prosperity Shares”—non-debt securities that would provide creditors with a share of future upside economic growth.

Turning to the legal issues, the chapter next addresses the legality of a U.S. default and the roles of the executive, legislative, and judicial branches. It confronts the constitutional issues that would be raised by a default and repudiation of the U.S. debt, in particular under Section Four of the Fourteenth Amendment (“The validity of the public debt of the United States . . . shall not be questioned”). It also examines the power of Congress under the Bankruptcy Clause to enact a law that would provide the U.S. with a discharge of its debt. To avoid some of the constitutional problems, it concludes that the most promising approach would be a default but under circumstances that make clear that the debt remains outstanding and that the U.S. is not relieved of its obligations. However, the default would be accompanied by the elimination of the U.S. consent to be sued on its debt in courts sitting in the U.S. and through asset-protection strategies that would reduce the likelihood that holders of the debt could reach non-immune-from-execution assets outside the U.S. The chapter concludes that a default and restructuring would be logistically feasible and arguably legally justifiable, although subject to substantial uncertainty.


in Is U. S. Government Debt Different? (Wharton Financial Institutions Center Press 2012).