Why does Mississippi owe Britain over $10 billion? Will the state ever repay the debt?

The state of Mississippi still owes Great Britain a staggering amount of money in unpaid loans during the mid-1800s.

While a government defaulting on its debts in the modern realm of international finance is quite rare, the debt was never fully repaid and at one time caused the state to become entangled in an international dispute.

Mississippi secured bonds in the 1800s

During the 1830s, Mississippi — along with many other southern states — secured bonds to finance a range of statewide projects, including railroads, canals and banks. These bonds were essentially loans from investors who trusted in the state’s commitment to repayment.

Mississippi acquired $2 million in bank bonds from the Planters Bank and an additional $5 million in Mississippi Union Bank bonds. Unfortunately, the investments fueled by these funds failed to yield the anticipated returns, a problem mirrored in other southern states as well.

With the Panic of 1837 causing a fledgling economy that turned into a severe depression, many states struggled to pay their debts. Between 1841 and 1842, eight states and a territory, Mississippi included, defaulted on their interest payments.

With the urging of influential state figures, including the rising Senator Jefferson Davis, Mississippi began withholding payments on these loans. Although the excuse was due to insufficient revenue, the reality was that Mississippi had borrowed more than it could handle and chose not to fulfill its financial obligations.

President tells Mississippi to fend for itself

As Mississippi declined payment on its bonds and grappled with a severe economic downturn, northern banks acquired these bonds and used them as collateral to secure funds from European investors, predominantly in Britain.

In the mid-1800s, powerful European nations used “gunboat diplomacy” and invasion threats to enforce debt repayment. When the British Parliament contemplated invading Mississippi and seizing its cotton crops, former President John Quincy Adams advocated leaving the state to fend for itself.

Adams went so far as to declare in a Congressional address, “In the event of such a war, the State involving herself therein will cease thereby to be a State of this Union, and will have no right to aid in her defense from the United States, or any one of them.”

This caused a deep rift between Mississippi and the federal government in the decades leading up to the Civil War.

Repudiating the loans

With no foreign invasion ever taking shape, Mississippi never paid for the principal money it owed. In fact, it took things a step further and argued that private borrowers should repudiate their debts with banks as well.

By 1853, Mississippi and several other southern states had essentially repudiated their debts owed to northern and foreign investors. Whether due to corrupt leadership, economic recession, or bondholders’ unwillingness to negotiate, most states persisted in their nonpayment for years.

In response to the states’ failure to meet obligations, Britain established the Council of Foreign Bond Holders. This organization successfully secured payments from most states over subsequent decades, with Mississippi remaining the primary exception.

While many states eventually reconciled their financial responsibilities, or at least made partial payments, Mississippi continued in its refusal to pay. The Mississippi and US Supreme Courts went back and forth in legal battles over the unpaid debts until the mid-1870s.

In 1875, Mississippi created a new state constitution which directly repudiated the initial Planters Union and Mississippi Union Bank bonds.

20th century events

While Mississippi felt relieved of its financial obligations, the repudiation was not considered legal by any northern or foreign investors.

With the vast majority of investors being from Great Britain, the British parliament even argued in 1930 that Mississippi changing its constitution to not pay its debts was in direct violation of Article 1, Section 10, of the Constitution of the United States which prohibits states from passing laws that impair contractual obligations.

Prominent British figures, including Winston Churchill, later argued for repayment by canceling British debts to the U.S. accrued during World War I. However, the U.S. now being the principal lender on the world stage, rejected these offers, demanding full payment for loans provided to foreign nations.

In a 2015 interview with NPR, Clifford Thies, a professor of economics and finance at Shenandoah University, claimed that Mississippi owed over $10 billion in principal and interest to the original investors by 1987.

Meanwhile, these bonds passed down to descendants of the initial investors, many of whom chose to pursue legal action against Mississippi in the 1990s.

One of the more prominent court cases saw the nation of Monaco, one of the original creditors, bringing Mississippi to court to reclaim the initial investment along with interest. Additionally, a debt collector based in Montreal similarly pursued legal action to retrieve his principal amount plus interest, drawing international attention to Mississippi’s 150 year old debts.

Does Mississippi still owe money today?

Although the world has changed much since the 1840s, Mississippi’s repudiated debts have never disappeared or been fully resolved.

Thies also claimed that several British debt collectors still occasionally send collection letters to Mississippi’s Treasury Office, seeking repayment. The state has yet to publicly address these debts.

In 2023, the cumulative debt Mississippi owes to the descendants of the original creditors—including both principal and interest—extends well beyond $10 billion, possibly being as much as $90 billion. This amount is made more significant considering Mississippi is expected to surpass Great Britain’s economy by the end of the year.

However, with the passage of time, the loss of official documents, and the refusal of Mississippi to address this issue, payments are highly unlikely going into the future.