[Danzig]

jms, it boggles the mind that some in congress, and elsewhere, think default is no big deal...or that people in congress, who are supposed to know better, think we can just pay some things....so, here's why you can't prioritize bill paying, and anyone who thinks we can just pay some bills while balancing the budget (what a laugher) take note of the first reason why:




This is what's known among debt ceiling junkies as "payment prioritization"—you use cash on hand to keep paying interest and rolling over the principal on the national debt, while letting Medicare reimbursements or salaries for FBI agents slide. Here are four problems with the idea, according to the Treasury Department:

1. It's illegal: Treasury is not authorized to unilaterally decide to pay certain bills and not others. If it were, the constitutional order would completely collapse. Obama could just not cut the checks for farm subsidies or missile defense programs he opposes. Then in a few years President Ted Cruz could refuse to pay SNAP benefits.

2. It's also impossible: 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.)

3. The timing doesn't work: Over a given year, the Treasury certainly collects more in taxes than it pays in interest. But that's not necessarily true on any given day. Most days the Treasury doesn't pay any interest. Then on some days large interest bills come due. To prioritize interest payments, you would need to not pay certain bills the Treasury does have enough cash on hand to pay in order to stockpile money for future interest payments. That further exacerbates problem Nos. 1 and 2.

4. Prioritization doesn't solve the problem: Even if all these problems could be waived away, you're not really solving the underlying problem. Yes, bondholders would still get their money. But nobody in the future could seriously treat U.S. government debt as a risk-free information-insensitive asset. It would become just another speculative play whose odds of working out would depend on your assessment of the ups and downs of American politics. Making the interest payments would somewhat mitigate the ensuing financial crisis, but would by no means eliminate it.