Geithner flip-flops on payment prioritization

For months conservatives have been saying that regardless of whether or not the debt limit is raised by August 2nd, the United States is in no danger of defaulting on its debt since the Treasury Department will have more than enough revenue to make interest payments. On May 23rd, Sen. Jim DeMint, R-S.C., sent a letter to Secretary Tim Geithner demanding that he stop creating uncertainty in the market by denying that the Treasury Department was incapable of prioritizing federal payments on the debt above other government obligations.

Geithner responded with a June 28th letter categorically denying that the Treasury has any capability of prioritizing federal payments: “For all of these reasons, the idea of prioritization has been rejected by every President and Secretary of the Treasury who have considered it. It is unwise, unworkable, unacceptably risky and unfair to the American people. There is no alternative to enactment of a timely increase in the debt limit.”

But now The Wall Street Journal is reporting that Geithner has somehow magically solved the “unworkable” prioritization problem and that their is an “alternative” should the debt limit not be raised by August 2nd:

The Treasury Department will detail how it will handle the government’s 100 million monthly payments if Congress doesn’t raise the federal debt ceiling, pulling back the curtain on a closely held plan that could have dramatic consequences for the economy, the U.S. credit rating and America’s political standing.

Wall Street officials believe Treasury will restructure the way it pays bills so that all bondholders, including foreign governments such as China, are given priority, so that the country doesn’t default on its debt obligations—something even Greece has been able to manage.

Beltway ConfidentialUS

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