Debt ceiling crisis: why "prioritization" of Federal payments is NOT feasible,

according to two responsible Republicans, even though others are pushing to pay bondholders first.

http://www.chicagotribune.com/news/politics/sns-rt-us-usa-fiscal-debtlimitbre90f029-20130115,0,4688497.story

WASHINGTON (Reuters) - Republican lawmakers are preparing to introduce legislation to direct the U.S. Treasury to make interest payments on U.S. bonds first and then prioritize other government outlays in case Congress does not raise the debt ceiling.

SNIP

"Prioritization is impossible," said Tony Fratto, who was Deputy Press Secretary for Bush and a spokesman on economic policy who fought through approximately seven debt limit increases with Congress.

"Is the government really going to be in the position of withholding benefits, salaries, rent, contract payments etc., in order to pay off Treasury bondholders? That would be a political catastrophe," Fratto said.

INCREASED CREDIT RISK

Keith Hennessey, Bush's National Economic Council director, said prioritization was a bad idea that could increase credit risk and said it would be irresponsible.

"Payment prioritization doesn't stop payments, it just delays them. Then the aggrieved party sues the government, and probably wins, and it turns into a bloody mess," Hennessey, now an economist at Stanford, said in a blog post this week.

SNIP