Feds can't prioritize—and shouldn't!

By Frank Moraes

On Friday, I wrote about something that is really bugging me, Debt Ceiling Crisis Options. I hate the idea that is being pushed by many conservatives that the Debt Ceiling is no big deal. On Bloomberg TV, John Boehner said, "Those who have loaned us money, like in any other proceeding, if you will—the bondholders usually get paid first." What he means is that the United States government has a greater obligation to bond holders than it does to Social Security Recipients.

What I find so vexing about this is that there is a very casual class war going on here, "Of course the rich must be paid first!" I just don't see any difference between the bond holders and the Social Security recipients. Both groups paid the government money in the past in exchange for returns now. It is true that if we are late, bond holders may well think twice before they loan money to the government again. But isn't it also true that people will be less inclined to pay payroll taxes for a benefit they may or more not receive? (I have thought about this a lot. Those who would cut Social Security never seem to think that support for the highly regressive payroll tax is dependent upon a decent return.)

NPR had a very good segment on this tonight, In A Debt Crisis, US May Have To Decide Payment Priorities. It quoted Boehner, of course. But the meat of the piece was a interview with Mark Patterson who was the chief of staff at the US Treasury from 2009 until this May (now at the Center for American Progress). He said that if you asked any recent Treasury Secretary of either party they would tell you this idea of prioritizing the bond payments is "a god-awful idea." He also provided an excellent analogy:

I liken it to a household. If you are a homeowner and you decided to pay only your mortgage payment, but you stopped paying your utility bill, your credit card bill, your student loan bill and your car payment, your credit rating would go down the tubes even though your mortgage was still current.

What this is really all about is more cover for John Boehner and the Republicans. He wants to crash the economy and then stand back and say, "Well, if you did what I said, everything would be fine! Don't blame me." But it is still a good talking point. I'm sure the Fox News viewers will just love up—right up to the time when their Social Security checks stop coming.

And Patterson goes further. He notes that the Treasury's system is not designed to do what too many Americans do each month: figure out how much of each of its bills it will pay. The system is designed to pay all of its bills in full all the time. So even if Obama agreed with Boehner that the bond holders are ever so much more important than our retired citizens (and I'm very much afraid that he does), we proably couldn't manage it. If this continues on, it will be a clusterfuck.

(Cross-posted at Frankly Curious.)