Notes
The US has never defaulted on its debt — except the four times it did.
The default on the U.S. government’s moneyfactory.gov/images/FactSheet_Deman… in early 1862, caused by the Treasury’s financial difficulties trying to pay for the Civil War. In response, the U. S. government took to printing pure paper money, or “greenbacks,” which during the war fell to significant discounts against gold, depending particularly on the military fortunes of the Union armies.
The overt default by the U.S. government on its cato.org/cato-journal/fall-2018/america… in 1933. The United States had in clear and entirely unambiguous terms promised the bondholders to redeem these bonds in gold coin. Then it refused to do so, offering depreciated paper currency instead. supreme.justia.com/cases/federal/us/294… went ultimately to the Supreme Court, which on a 5-4 vote, upheld the sovereign power of the government to default if it chose to. “As much as I deplore this refusal to fulfill the solemn promise of bonds of the United States,” scholarship.law.ufl.edu/cgi/viewcontent… Justice Harlan Stone, a member of the majority, “the government, through exercise of its sovereign power…has rendered itself immune from liability,” demonstrating the classic risk of lending to a sovereign. In “press.princeton.edu/books/hardcover/978…,” his highly interesting political history of this event, Sebastian Edwards concludes that it was an “excusable default,” but clearly a default.
Then the U.S. government defaulted in 1968 by usmint.gov/learn/history/historical-doc… its explicit promise to redeem its silver certificate paper dollars for silver dollars. The silver certificates stated and still americanhistory.si.edu/collections/sear… on their face in language no one could misunderstand, “This certifies that there has been deposited in the Treasury of the United States of America one silver dollar, payable to the bearer on demand.” It would be hard to have a clearer promise than that. But when an embarrassingly large number of bearers of these certificates demanded the promised silver dollars, the U.S. government simply decided not to pay. For those who believed the certification which was and is printed on the face of the silver certificates: Tough luck.
The fourth default was the 1971 breaking of the U.S. government’s commitment to redeem dollars held by foreign governments for gold under the history.state.gov/milestones/1969-1976/…. Since that commitment was the lynchpin of the entire Bretton Woods system, reneging on it was the end of the system. President Nixon fool.com/investing/general/2013/08/15/t… this act as temporary: “I have directed [Treasury] Secretary Connally to suspend temporarily the convertibility of the dollar into gold.” The suspension of course became permanent, allowing the unlimited printing of dollars by the Federal Reserve today. Connally notoriously chathamhouse.org/2021/09/policymakers-c… his upset international counterparts, “The dollar is our currency but it’s your problem.”
Via the Hill.