US Government Debt Different - Finance Department - University of ...

Howell E. Jacksonof those payments. An obvious place to start would be to prioritizedebt service payment in recognition of the privileged status thosepayments might be said to be entitled under the Public Debt Clause.Some unattributed comments from the Obama Administration inthe final days of the 2011 debt crisis suggest that the Treasury maywell have prioritized debt service had negotiations with Congressbroken down and the debt ceiling been reached. During August of2011, interest payments on public debt came to $38 billion over thecourse of the month. Had the Administration chosen to privilegethose payments, only $148 billion of revenue would have remainedavailable for other expenditures, implying that only 54 percent ofother payments could have been made during that month. 8 Beyondarguable fidelity to the language of the Public Debt Clause,this modified version of FIFO would have advantages of assuaging(to some degree) adverse capital market reactions to a Phase TwoDebt Ceiling crisis. Exactly how effective the approach would bein achieving this benefit is, of course, uncertain, and it is possiblethat non-performance with respect to payment of other obligationswould still trigger significant adverse market reactions and could,among other things, constitute a credit event for the sake of creditdefault swaps on U.S. Treasuries, as well as other less easy to predictadverse consequences.633. FIFO Informed by Special Authorities with Respect to SocialSecurity Trust FundsScattered throughout the U.S. Code are a host of other provisionsthat might also conceivably be relevant to how the Treasury wouldadminister FIFO payments in a Phase Two Crisis. For example, under42 U.S.C. § 1320B–15, the Secretary of the Treasury arguablyhas power to redeem Social Security Trust Fund holdings of governmentsecurities in order to fund benefit payments. 9 The redemption8 This calculation assumes that the Treasury would roll over any principal paymentson public debt. Had the government taken a broader interpretation of the PublicDebt Clause and also prioritized Social Security and Medicare, the amount ofrevenue available for other government payments in August of 2011 would havedropped to 34 percent.9 The text of the provision reads:PROTECTION OF SOCIAL SECURITY AND MEDICARE TRUST FUNDS(1996)