Excerpted from “
Treasury: Proposals to “Prioritize” Payments on U.S. Debt Not Workable; Would Not Prevent Default” By Neal Wolin, Deputy Secretary of the Treasury, “
Treasury Notes” (blog), 1/21/2011, with my added
emphasis
[SIZE="+2"]W[/SIZE]hile well-intentioned, this idea is unworkable. It would not actually prevent default, since it would seek to protect only principal and interest payments, and not other legal obligations of the U.S., from non-payment. Adopting a policy that payments to investors should take precedence over other U.S. legal obligations would merely be default by another name, since the world would recognize it as a failure by the U.S. to stand behind its commitments. It would therefore
bring about the same catastrophic economic consequences Secretary Geithner has warned against, including sharp rises in mortgage interest rates and other borrowing costs for families; reductions in the value of homes, 401(k)s and other retirement savings; and negative effects on the dollar and the safe haven status of Treasury bonds and other Treasury securities. Such a policy would also be unacceptable to American servicemen and women, retirees, and all other Americans, who would rightly reject the notion that their payment has been deemed a lower priority by their government. For these reasons, the Department of Treasury has always emphasized – regardless of which party has held the White House or either house of Congress – that the only way to prevent default and protect America’s creditworthiness is to enact a timely increase in the debt limit.
