Can We Pay The Debt First?

Andrew Sullivan —  Oct 8 2013 @ 2:39pm

Yglesias shakes his head:

Because payment prioritization is illegal, Treasury’s payment system is not designed to allow prioritization to happen. Cardiff Garcia has an in-depth roundup of coverage of this angle, but the best simple explanation comes from the Treasury inspector general, who explains that on a technical level, the systems “are designed to make each payment in the order it comes due.” Of course systems could always be changed. But look at all the problems Health and Human Services is having in getting the Affordable Care Act computer systems to work. They can’t just whip up an entirely new computer system in the next two weeks. (And, of course, given the government shutdown, it would be illegal for them to hire someone to try.)

Caroline Baum disagrees:

The Treasury makes 100 million payments each month, but the idea that it has no ability to determine what it pays to whom doesn’t pass the smell test.

… The Government Accountability Office has said the Treasury secretary has the authority to prioritize payments. Former budget Director David Stockman says it can be done. Former Treasury Secretary Paul O’Neill tells me Treasury “could prioritize, and it’s a lot easier today than when people were doing payrolls in advance.” But any such actions “would start eating into things that would cause a revolution,” he says.

Felix adds:

[W]hile the systems are designed to make payments in the order they come due, they have also been designed so as to effectively insulate bond repayments from all other payments. Bond repayments are made through a system called Fedwire, while all other payments are made through the standard banking ACH system. Logistically, it’s entirely possible to keep up to date on all Fedwire payments without making any ACH payments at all. … Could Treasury decide to prioritize Fedwire payments, and then turn on the ACH payments sporadically, only insofar as they didn’t eat up enough cash to endanger bond repayments? I don’t see why not.

Even if we can avoid default, Plumer cautions against hitting the debt ceiling:

So it’s possible, though not certain, that the Obama administration could avert a default and complete meltdown of financial markets in the event of a debt-ceiling breach. But avoiding a recession would be extremely difficult. And markets would likely react badly in either case: A recent note from Deutsche Bank’s David Bianco estimates that if we blow past the debt ceiling and Treasury starts prioritizing payments, the S&P 500 could lose 10 percent of its value … And that’s without an actual default on the debt

I do not understand who anyone calling himself a conservative would be willing even to entertain this kind of risk. But then “conservative” does not mean what it used to mean any more, does it? It now means revolutionary risk-taking and brinksmanship.