A common argument among those who are sanguine about using the debt ceiling as political leverage is that breaching the debt ceiling wouldn’t mean default.
They argue that the Treasury has plenty of money coming in each day to cover interest payments, and so therefore the Treasury can just prioritise debt payments (ahead of other spending) and avoid default.
There are two problems with this.
The first is that legally and technically, prioritization might be impossible.
Here’s the other problem. It’s not true that on all days the Treasury has more money coming in than it has to pay out. As Goldman Sachs points out, the receipts/payments schedule is lumpy. The U.S. might be able to prioritise for a few days, but come November the U.S. would have to pay way more than was coming in that day, and we’d have a real breach no matter what.
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