Open gallery
Penn Law professors Charles W. Mooney Jr. and David Skeel have collaborated with colleagues at Wharton to edit a new volume of essays on the debt crisis, Is U.S. Government Debt Different?
Published by the Wharton Financial Institutions Center (FIC), the book is based on a conference of the same name organized by the Law School and FIC in May 2012, against the background of skyrocketing U.S. government debt and the standoff between Congress and President Obama in the summer of 2011 over the debt ceiling, a political showdown that will be reprised in the coming months.
In addition to an essay by Mooney, the Charles A. Heimbold, Jr. Professor of Law, the volume includes a contribution by Penn Law Professor and conference participant William W. Bratton, Deputy Dean and Nicholas F. Gallicchio Professor of Law.
“The confluence of shocks and near-misses impressed on us the urgent need to consider the unthinkable: default, restructuring, or a wholesale reassessment of the U.S. Treasury securities’ place in the world,” the volume’s editors write.
The conference brought together leading economists, historians, lawyers, market participants, and policy makers, many of whom have contributed essays, to discuss different aspects of U.S. government debt, including its role in the global financial markets, its constitutional, statutory and contractual basis, and its sustainability.
“We did not strive for policy consensus, nor did we achieve one,” the editors reflect. “Our purpose in the volume, as it was in the conference, is to start a conversation long overdue. We hope it will continue. If the conference convinced us of one thing, it is that the stakes in the future of U.S. government debt are too high to confine serious analysis and informed debate to legislative backrooms and disciplinary silos.”
The conference culminated with a thought experiment, conceived by Mooney to map out options for a hypothetical U.S. debt restructuring.
In his essay “United States Sovereign Debt: A Thought Experiment on Default and Restructuring,” Mooney asks a series of questions: What if the United States decided that it was in its interest to restructure U.S. Treasury debt? How might it go about it? What legal and policy options would the U.S. government have, what are the pros, cons, and likely consequences of taking any of these steps?
Mooney’s paper considers constitutional, statutory, market and transactional challenges to default and restructuring. He concludes that a selective default and restructuring of U.S. debt obligations is problematic but possibly feasible from a legal perspective.
Bratton’s contribution, “A World Without Treasuries?” grows out of a conference panel that explored the functions of U.S. Treasury instruments and the Treasury market in the U.S. and abroad.
As the panel noted, U.S. Treasuries play a unique role in the national and global economy. Ever since their inception at the time of the American Revolution, U.S. government debt obligations have been much more than another means to finance the government: they cemented the political union, served as a currency, backed the banking system, and helped attract foreign capital, according to Richard Sylla, an economic historian at NYU, who participated in the conference.
Bratton’ contribution focuses on the role of Treasury securities in the modern financial system. He argues that when the federal government was running a budget surplus in the late 1990s, the emergence of a financial system anchored in private, not government, securities was “never in the cards.”
In addition to the contributions of Mooney and Bratton, the volume includes essays by: Franklin Allen, University of Pennsylvania; Donald Bernstein, Davis Polk & Wardwell LLP; Peter R. Fisher, BlackRock; Anna Gelpern, American Univeristy Washington College of Law; Richard J. Herring, University of Pennsylvania; James R. Hines, Jr., University of Pennsylvania; Howell E. Jackson, Harvard Law School; Jeremy Kreisberg, JD candidate, Harvard Law School; James Kwak, University of Connecticut; Deborah J. Lucas, MIT; Michael W. McConnell, Stanford Law School; Jim Millstein, Millstein & Co. LLC; Kelley O’Mara, JD candidate, Harvard Law School; Zoltan Pozsar, International Monetary Fund; Steven L. Schwarcz, Duke University; Richard Squire, Yale Law School; and Richard Sylla, NYU.
“Is U.S. Government Debt Different?” is available as an e-book for free: Download a PDF of the e-book.
To obtain a free print copy of the book, email a request to ascooper@wharton.upenn.edu.