united-states contract-law us-constitution constitutional-law
Would Trump&#39;s debt reduction strategy be constitutional?
<p>US Presidential Candidate Donald Trump has announced a plan intended to reduce the national debt: Convince bondholders to accept less than they are contractually owed.  (<a href="http://www.nytimes.com/2016/05/07/us/politics/donald-trumps-idea-to-cut-national-debt-get-creditors-to-accept-less.html" rel="nofollow noreferrer">NY Times article on it here</a>.)  </p>

<p>In order for such an offer to be at all attractive to bondholders, there must be an implicit threat that the bondholders may not be paid (at least not in full) if they do not accept an offer for less than the original contract.  </p>

<p>Yet, section IV of the 14th Amendment to the US Constitution says "The validity of the public debt of the United States... shall not be questioned."  The last paragraph of Article II, Section 1, states that any President must take an oath swearing that he‡ "will to the best of [his] ability, preserve, protect and defend the Constitution of the United States." </p>

<p>As a candidate, Trump <a href="http://www.cnn.com/2016/05/07/politics/donald-trump-hillary-clinton-second-amendment/" rel="nofollow noreferrer">says his opponent</a> "wants to abolish the 2nd Amendment." How does his own debt-reduction plan fit in with the 14th? </p>

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<p>‡ <em>Gendered language original, not meant to imply anything.</em></p>

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<p><em><a href="https://law.stackexchange.com/questions/5133/whats-the-constitutionality-of-the-debt-ceiling">Here's a related question, with a focus on the debt ceiling rather than proposed actions of a businessman-president</a>.</em></p>

<p>Here's a constitutionally plausible answer: he isn't going to threaten to not repay bondholders, thereby not implicating the 14th Amendment.</p>

<p><a href="http://www.politico.com/story/2016/05/trump-no-debt-default-222957" rel="nofollow"><em>All I said is that if interest rates go up, we'll have a chance to buy back bonds at a discount, which is standard [...] Certainly I'm not talking about renegotiating with creditors.</em></a></p>

<p>As a hypothetical question,  here's a hypothetical answer: appoint key people to positions that trade Treasury bonds elsewhere in the federal apparatus.  The Social Security Administration buys (until 2034?) Treasurys and holds <a href="https://en.m.wikipedia.org/wiki/Social_Security_Trust_Fund" rel="nofollow">$2.79 trillion</a> as of 2014.  Appoint an administrator, offer $1 for the lot, then pardon the administrator for all the federal laws and dereliction of duty that the administrator just committed.  </p>

<p>Similarly, Trump is on record <a href="http://www.breitbart.com/2016-presidential-race/2016/04/20/donald-trump-on-yellin-at-the-fed-inclined-to-put-other-people-in/" rel="nofollow">calling for</a> a partisan replacement of Janet Yellen.  The Federal Reserve is <em>the</em> market maker in Treasurys, and if it cared (for some reason...) to play fast and loose or just stupid with it's balance sheet and charge to maintain price stability, well, it can pay what it likes for Treasurys. </p>

<p>Finally, while its sideways to the "take it or leave it" Trump bluster I believe the  <a href="http://www.slate.com/articles/business/moneybox/2013/01/_1_trillion_platinum_coin_the_debt_ceiling_standoff_can_be_averted_with.html" rel="nofollow">  trillion dollar coin </a> is technically legal, and Obama didn't pursue it because of a preference to maintain the spirit of the current currency system.  Trump could coin 14 of these, creating $14 trillion in seignorage and leave the U.S. debt free at full 1:1 payoff at a stroke. </p>
