Was there ever a default on US Treasury debt?

This is a link to an interesting essay regarding the precedent for repudiation of sovereign obligations by an industrialized nation.


The resulting lawsuits ended up in the Supreme Court, which upheld the ability of the government to refuse to pay in gold by a vote of 5-4. The Supreme Court gold clause opinions of 1935 make instructive reading. The majority opinion, written by Chief Justice Hughes, includes these thoughts: • “The question before the Court is one of power, not policy.” • “Contracts, however express, cannot fetter the constitutional authority of the Congress.”

Justice McReynolds, writing on behalf of the four dissenting justices, (emphasis added) left no doubt about their view: • “The enactments here challenged, will bring about the confiscation of property rights and repudiation of national obligations.” • “The holder of one of these certificates was owner of an express promise by the United States to deliver gold coin of the weight and fineness established.” • “Congress really has inaugurated a plan primarily designed to destroy private obligations, repudiate national debts, and drive into the Treasury all gold within the country in exchange for inconvertible promises to pay, of much less value.” • “Loss of reputation for honorable dealing will bring us unending humiliation.” The clearest summation of the judicial outcome was in the concurring opinion of Justice Stone, as a member of the majority: • “While the government’s refusal to make the stipulated payment is a measure taken in the exercise of that power, this does not disguise the fact that its action is to that extent a repudiation.” • “As much as I deplore this refusal to fulfill the solemn promise of bonds of the United States, I cannot escape the conclusion, announced for the Court, that the government, through exercise of its sovereign power, has rendered itself immune from liability.” So five of the nine justices explicitly stated that the obligations of the United States had been repudiated. There can be no doubt that the candid conclusion of this highly interesting chapter of our national financial history is that, under sufficient threat, crisis and pressure, a clear default on Treasury bonds did occur.”



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