Mitu Gulati on Trump, US Debt Restructuring, and Global Borders

The Nature of Bonds and Debt

• 💡 Bonds are viewed not just as financial contracts but as narratives of who owes whom what and why, which can change rapidly.
• 🔑 The exploitation of written rules over established norms can create opportunities to gain an advantage in debt disputes.

Trump Administration and Debt Swaps

• ⚠️ The concept of a "Mar-a-Lago Accord" involving debt swaps, like extending maturities on short-term US Treasuries, is discussed as a hypothetical but increasingly serious topic.
• ⚖️ While such actions might seem like default, legal analysis suggests that the US Treasury Department may have the authority to unilaterally extend maturities without breaching contract terms.
• 🏛️ Historically, the US Supreme Court upheld the abrogation of gold clauses in contracts during the 1930s, demonstrating a precedent for the government overriding contractual rights in times of crisis.

Historical Debt and Set-offs

• 💰 The possibility of collecting on historical debts, such as World War I loans to Great Britain, is explored as a potential source of funds.
• 🤝 The legal mechanism of set-off, where mutual debts between two parties are canceled out, could theoretically be used to offset UK debt to the US against UK holdings of US Treasuries.
• 🌍 The decision not to collect on these historical debts was influenced by geopolitical considerations and the desire to support European recovery post-WWI.

Shifting Borders and Debt Implications

• 🗺️ The concept of fixed national borders is relatively new, and historical laws surrounding conquest and changing state territories are being revisited.
• 🇺🇦 In the context of Ukraine, if borders change, the laws governing debt allocation and responsibility for pre-existing debts become unclear.
• ⚖️ The doctrine of odious debts suggests that new governments may not be responsible for debts incurred by despotic predecessors, especially if creditors were aware of the nature of the borrowing.
• 📜 The 14th Amendment's clause stating the validity of US public debt shall not be questioned is examined, with a focus on the less-discussed part about not paying for debts incurred in suppressing insurrection or rebellion.

Acquiring Territory and Funding

• 🌐 The idea of acquiring territory, like Greenland, is discussed as plausible, though the legal framework for purchasing land from post-colonial states is still evolving.
• 💰 Funding such acquisitions would likely require significant borrowing, raising questions about the US's ability to issue more sovereign debt.
• 🏦 The potential use of proceeds from recouping old UK bond payments to fund the purchase of Greenland is presented as a speculative but illustrative scenario.