Earlier this year, President Donald Trump suggested that there could be “an interesting problem” with the Treasury market that would justify non-payment due to fraud. Although it isn’t clear that he meant to address US debt obligations — rather than payments processed through the Treasury — the passing reference got those interested in sovereign debt thinking about Section 4 of the Fourteenth Amendment, usually known as the Public Debt Clause:
The validity of the public debt of the United States, authorised 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, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
Although the Public Debt Clause was adopted to address the debt accumulated by the US government during the Civil War, everyone agrees that it applies to the US “public debt” today. The tricky part is that there isn’t agreement on what it actually means — including on Alphaville...