If the government can’t pay all its bills come Wednesday, odds are it will pay bondholders. Social Security and Medicare recipients will be high on the must-pay list, too. Likely losers: federal workers in jobs deemed nonessential, private contractors, and state and local governments. It seems politically certain that active-duty members of the military would be paid in the event of a default, but there are no guarantees as the government decides which of its 80 million monthly payments to make and which to set aside. Since the U.S. now borrows slightly over 40 cents for every dollar it spends, a failure by Congress to increase the debt ceiling above the $14.3 trillion limit suggests the government could renege on more than 40% of its current obligations.
Just five days before the Treasury begins running out of cash to pay all its bills, Congress remains deadlocked over plans both to raise the debt limit and to trim federal spending. President Barack Obama warned anew that the credit status and financial credibility of the United States stand in severe jeopardy.
Treasury, working with the White House budget office, has sketched out a priority plan for payments. So far, officials have refused to provide details, knowing it could touch off a firestorm. They’re hoping for a compromise soon so it won’t be necessary. But White House spokesman Jay Carney says Treasury would release some details on payment priorities as the Tuesday deadline approached, perhaps over the weekend.
