Are Loans, Mortgages and Utility Bills “Government Obligations”? 18 U.S.C. § 8 and 31 U.S.C. § 1501

The government obligations argument

Lawtopolis publishes this discussion for informational and educational purposes, and as an exercise of the freedoms of speech, press, assembly, belief and religion protected by the First Amendment. It sets out what each statute and decision says and what courts have done with it. It is not legal advice and does not recommend any course of action.

The essay links several statutes into a chain. Federal Reserve notes are “obligations of the United States.” Banks create credit when they lend. The 1933 gold legislation made all debts payable in legal tender. Federal accounting law lists loan agreements and public utility services. Therefore, it concludes, every private loan, mortgage and utility bill is a recordable obligation of the United States, settled on the public credit.

Several links in the chain are accurate. Others depend on words that limit a statute to its own chapter. The sections below take each statute in turn.

18 U.S.C. § 8: “obligation or other security of the United States”

The term “obligation or other security of the United States” includes all bonds, certificates of indebtedness, national bank currency, Federal Reserve notes, Federal Reserve bank notes, coupons, United States notes, Treasury notes, gold certificates, silver certificates, fractional notes, certificates of deposit, bills, checks, or drafts for money, drawn by or upon authorized officers of the United States, stamps and other representatives of value, of whatever denomination, issued under any Act of Congress, and canceled United States stamps.

18 U.S.C. § 8

This definition sits in the general provisions of the federal criminal code. It supplies the meaning used by the counterfeiting and forgery crimes in Chapter 25, such as 18 U.S.C. § 471. Shortened versions often drop the phrase “drawn by or upon authorized officers of the United States.” That phrase limits checks and drafts to those issued by or on federal officers. A private promissory note or a utility bill is not issued “under any Act of Congress” by a federal officer, so it falls outside the list.

31 U.S.C. § 1501: recording obligations of federal agencies

An amount shall be recorded as an obligation of the United States Government only when supported by documentary evidence of— (1) a binding agreement between an agency and another person (including an agency) that is— (A) in writing, in a way and form, and for a purpose authorized by law … (2) a loan agreement showing the amount and terms of repayment … (8) public utility services.

31 U.S.C. § 1501(a)

Section 1501 is part of Chapter 15 of Title 31, “Appropriation Accounting.” It tells a federal agency when it may book an amount against its appropriation — that is, when the agency itself owes money. The obligor is the federal government. Item (8) covers public utility services an agency uses, such as electricity for a federal building. Item (2) covers loans the government makes or guarantees. The section does not turn a private household’s loan or utility account into a federal obligation.

12 U.S.C. §§ 411 and 412: Federal Reserve notes

Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues.

12 U.S.C. § 411

Federal Reserve notes are, by statute, obligations of the United States. Under § 412, each Federal Reserve bank must pledge collateral at least equal to the notes issued to it, such as Treasury securities. Those sections describe currency. Bank deposits, loans and bills are separate private contracts that are paid in that currency or by bank transfers.

12 U.S.C. § 83 and how banks lend

No national bank shall make any loan or discount on the security of the shares of its own capital stock.

12 U.S.C. § 83(a)

Section 83 stops a bank from taking its own shares as collateral for a loan, which would weaken its capital. It does not address whether a bank lends “its own money.” The essay quotes the version of the section that Congress replaced in 2000.

The essay is right that banks create deposits when they lend. The Federal Reserve Bank of Chicago’s Modern Money Mechanics (1994 edition) says banks “do not really pay out loans from the money they receive as deposits,” and that “What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.” The Bank of England said the same in 2014. Courts have held that this does not cancel the borrower’s promise to repay; see “vapor money” claims.

31 U.S.C. §§ 3123 and 5118: the public debt and the gold clause

The faith of the United States Government is pledged to pay, in legal tender, principal and interest on the obligations of the Government issued under this chapter.

31 U.S.C. § 3123(a)

An obligation issued containing a gold clause or governed by a gold clause is discharged on payment (dollar for dollar) in United States coin or currency that is legal tender at the time of payment. This paragraph does not apply to an obligation issued after October 27, 1977.

31 U.S.C. § 5118(d)(2)

Section 3123 covers Treasury securities “issued under this chapter” — Chapter 31, the public debt. Section 5118(d)(2) carries forward House Joint Resolution 192 (1933), which made gold clauses unenforceable and let such debts be paid dollar for dollar in legal tender. Its last sentence, often left out, reflects Public Law 95-147 (1977): contracts made after October 27, 1977 may again contain enforceable gold clauses. Neither section makes private debts obligations of the United States.

The 1917 and 1933 emergency statutes

The Trading with the Enemy Act of 1917 gave the President wartime power over foreign exchange and gold. Section 2 of the Emergency Banking Act of March 9, 1933 extended that power to “any other period of national emergency declared by the President” and to transactions by “any person within the United States.” President Roosevelt used it in Executive Order 6102 to require delivery of most privately held gold. The statute’s definition of “enemy” (50 U.S.C. § 4302) does not include U.S. citizens at home. In 1977, Congress limited § 5(b) to time of war and moved peacetime emergency powers to the International Emergency Economic Powers Act. Private gold ownership became legal again on December 31, 1974.

How to check the government obligations claim yourself

If someone offers you a strategy built on government obligations, ask for the court decisions that accepted it. In the decisions cited on this page, courts did not accept it. Instead, read the real statute or rule the claim cites, and then read how courts have applied it. Also, look at the cases listed above. They show what happens when people raise the argument in court. For a real dispute, talk to a licensed attorney in your state. You can start with our directory.

Sources and further reading

Official sources used on this page:

• law.cornell.edu
• law.cornell.edu
• law.cornell.edu
• law.cornell.edu
• en.wikisource.org

Related reading on Lawtopolis:

• "All Obligations Are Securities and Discharged by Indorsement": HJR-192, 31 C.F.R. Part 328 and UCC Article 3
• House Joint Resolution 192 (1933)
• "Vapor Money" — "The Bank Didn't Lend Real Money"
• The Act of 1871, the Federal Reserve Act of 1913 and the 1933 Emergency: What Each Law Did