“This so-called prioritization scheme makes Republican priorities pretty clear — crystal clear, I might add,” White House press secretary Karine Jean-Pierre said Jan. 17. “They want to put wealthy bondholders ahead of ordinary Americans who want safe food, safe skies, safe communities and safe borders.”
Attempting to prioritize payments would pose serious political, practical and legal risks. Paying back bondholders could be crucial to protecting the fundamentals of financial markets, but it would enable the government to appear to be helping wealthy investors to pensioners, the disabled and military personnel.
It could also be subject to legal challenges, since the executive branch would decide which spending decisions of Congress to ignore and which to execute. This could, according to a 2015 analysis by the Congressional Research Service, “challenge the balance of power between Congress and the President over spending priorities and the potential for prioritization to be used in ways Congress may not intend.”
And it might not even work. In 2011, officials had made rough plans for a very simple version of prioritization. But the Treasury worried about its ability to prioritize payments within its own systems when it had to choose between a range of obligations, rather than just paying back interest and principal on debt and delaying everything else. Fed officials thought the department would figure it out in time, based on the transcripts from that August.
But “it’s something that until you develop the procedures and test the procedures, your comfort level is pretty low,” said Louise Roseman, a former Fed staffer who worked with the Treasury Department on contingency planning. The Fed acts as the government’s banker, so it would have helped make the prioritized payments.
Even after the contingency planning in the 2013 showdown, a senior Treasury Department official called the prioritization “completely experimental” and said it carried “unacceptable risk.”
It also remains unclear whether prioritization would avert a financial meltdown. Markets could still balk if the debt ceiling is breached, meaning the United States has defaulted on its obligations, whether it was an official default or not.