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IPFS News Link • Government Debt & Financing

Yellen Trashes GOP Plan to Prioritize Debt Payments

• by Michael Rainey

The U.S. bumped up against the federal debt limit in January, forcing the Treasury to start taking "extraordinary measures" to make its payments. Absent an increase or suspension in the federal debt limit, the Treasury could be unable to meet its obligations at some point this summer or early fall — an outcome that Yellen and many economists have warned could lead to a global financial catastrophe.

Some Republicans, however, think that the U.S. can avoid a technical default by prioritizing its debt payments, even if other obligations such as paying salaries at government agencies go unpaid. A bill taken up last week by the House Ways and Means Committee would instruct the Treasury Department on how to prioritize its payments in the event that the debt limit makes it impossible to meet all federal obligations in full.

The "Default Prevention Act" would require the Treasury to first pay all principal and interest on the national debt and all Social Security and Medicare benefits. After those payments are made, the Treasury would be required to prioritize defense and veterans' benefits. It would also be forbidden from paying for government travel and salaries for the executive branch and Congress until all other obligations have been met.

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