TPM has a closer analysis of who would get paid (hint: it ain't only China):
Sen. Pat Toomey (R-PA) recently proposed a stop-gap measure to prioritize paying off interest on U.S. debt in the event that the country reaches its debt ceiling. Democrats have attacked this plan as a "pay China first" proposal, which will disadvantage American retirees and veterans who are also owed money by the Treasury.As I wrote back then, money protects money - and the rest of us will just have to sacrifice.
But who would really get the money? Well, yes, China. But so too would many other countries, institutions, and individuals in the United States. The Christian Science Monitor has a handy breakdown here.
About 53 percent of U.S. debt held by the public was held domestically. Says CSM, "Within this slice, the largest category is individuals - Treasury notes are good solid additions to any portfolio. US individuals hold 12 percent of the country's debt. Next under the domestic category comes the Federal Reserve, which holds 9 percent of US debt, then pension and retirement funds, mutual funds, and state and local governments."
According to economist Dean Baker, who heads the Center for Economic and Policy Research, the debt is fairly spread out, but a disproportionate chunk is held by large financial institutions -- the same institutions that triggered the financial crisis. That crisis, and the economic downturn it created, cost the Treasury a tremendous amount of revenue, and accelerated the country's march toward its debt limit. Now, many of those same financial institutions want to be at the front of the line if the country nears default.
Even the House Republicans are "quietly dismissive" of the Toomey plan:
The conservative Republican Study Committee, which boasts a membership that comprises two-thirds of the Republican Conference, is pushing a bill that would forestall a “must pass” vote in Congress by giving the Treasury Department added authority to prioritize debt payments and prevent a full default if the ceiling were reached.Yea, that's the reason it's such a bad idea. The House Republicans fear the wrong people might get paid first!
The legislation “assures lenders that their investments in the United States government are entirely safe,” said Rep. Tom McClintock (R-Calif.), the lead House sponsor. “Congress will still have to deal with the issue of the debt limit. It simply takes a default off the table.”
[Treasury Secretary Timothy] Geithner has called the legislation, originally authored by Sen. Pat Toomey (R-Pa.), “unworkable” and potentially “quite harmful.”
Boehner has ignored the proposal, and GOP leadership aides are privately dismissive of it. One staffer said the bill would give “unprecedented power to the White House and the Treasury Department to pick who’s going to get paid.”
Money protects money.