The Treasury Department has admitted for the first time that the government is technically capable of prioritizing payments if Congress triggers a default crisis by failing to raise the country's borrowing authority.
In a letter to Republican Congressman Jeb Hensarling, a senior aide to Treasury Secretary Jack Lew said the New York Federal Reserve, which pays the principal and interest on government debt, would be "technically capable" of continuing to make those payments while Treasury halted other payments if the United States was unable to borrow more money. The official stressed, however, that such a system is untested.
Lew and other Treasury officials insisted during last October's debt limit crisis, when the U.S. came close to defaulting on some government obligations, that "prioritization" - a contingency strategy where bond payments are made while other outlays such as Social Security payments are halted - was not feasible.
In testimony to Congress, Lew said last October the government's payment systems weren't designed to decide who gets paid and who doesn't. "It would be chaos," Lew told Congress.
During the debt ceiling crisis last year, when House Republicans threatened not to extend the country's borrowing authority, Obama administration officials were at pains to dismiss the idea of any contingencies, lest that encouraged enough lawmakers to take the country over the brink and into default.
Yet lawmakers and analysts have long suspected that in the event of a default, Treasury and Fed officials would seek to keep current on bond payments to keep investors from panicking, while halting other payments as cash reserves ran out.
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