Last week, the Republican-controlled House approved a bill that would require the Federal government to make efforts to pay back foreign-held debts before committing to additional domestic expenditures.
The Full Faith and Credit Act, HR 807, would put into place a mandatory plan to require the government to tackle debts by having the U.S. Treasury pay down all interest payments on the national debt in the event of another debt ceiling showdown in Congress. That would eliminate a Democratic bargaining chip for more debt by severing the link between debt ceiling and the risk of default.
Under the proposal, the Social Security Administration could access its own trust fund to pay Social Security benefits and disability payments, and the Treasury would issue debt specifically for that purpose.
Opponents of the bill gave it the moniker “Pay China First Act” because the government would have to settle up its debt with foreign bondholders before proceeding with more domestic expenditures.
“Those who have loaned us money, like in any other proceeding, if you will, court proceeding, the bondholders usually get paid first. Same thing here,” House Speaker John Boehner (R-Ohio) told Bloomberg TV early last week.
Boehner said later in the interview, “I think doing a debt prioritization bill makes it clear to our bondholders that we’re going to meet our obligations.”
House Democrats largely rejected the proposal, and it is expected to be killed in the Democrat-controlled Senate. Even if it does make it out of the upper legislative chamber, President Barack Obama will likely veto the bill because it hamstrings Federal spending in a number of areas the White House deems obligatory.
“American families do not get to choose which bills to pay and which ones not to pay, and the United States Congress cannot either without putting the Nation into default for the first time in its history,” the White House said in a statement. “This bill would threaten the full faith and credit of the United States, cost American jobs, hurt businesses of all sizes, and do damage to the economy.”