Consols could be issued under Tsy’s existing bond authority (“The Secretary may issue bonds authorized by this section to the public and to Government accounts at any annual interest rate” 31 USC 3102) since unlike bills and notes, bonds have no time restrictions on maturity. In 3121, “the Secretary of the Treasury may prescribe… (5) the dates for paying principal and interest”. The permissive “may” instead of the mandatory “shall” means that the Secretary doesn’t actually have to ever set a date for paying principal.Read it at Modern Monetary Realism
Now here’s where the magic happens, as the TreasuryDirect website says, “When a Treasury bond matures, you are paid its face value”. A bond’s face value (synonymous with “par value” or “face amount”) is the principal Tsy promises to repay. When a bond is stripped, the face value is what the zero coupon is entitled to while the bond coupons go to the interest-only strip.
Now look at the debt ceiling statute, “The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) may not be more than…” (31 USC 3101). Consols are exempt from the debt ceiling because the obligation has no face amount of guaranteed principal to repay.
I am slightly unsure of the consol thing because 31-USC-3101 says:
” For purposes of this section, the face amount, for any month, of any obligation issued on a discount basis that is not redeemable before maturity at the option of the holder of the obligation is an amount equal to the sum of—(1) the original issue price of the obligation, plus … “beowulf:
Treasuries can be issued as interest-bearing (as T-bonds are) or on a discount basis (T-bills), the discount is sort of like the interest paid up front. The only payout is the guaranteed principal on the back end. A consol is a perpetual annuity, its interest-bearing but there is no back end.
Think of a consol as a constructively stripped bond with :(a) the Secretary keeping the face amount of the zero coupon principal, 3101 says Tsy-held “guaranteed obligations” don’t count against debt limit; and
(b) a separate interest-only annuity that can be (per bond statute, 3102), “sold to the public and to Government accounts at any annual interest rate”. Since there’s no maturity date at which time principal is guaranteed to be repaid, it doesn’t count against the debt limit either.