New York - Arabstoday
The US government will prioritise paying bondholders should the country fail to reach a deal to stop a default on its $14.3 trillion (Dh52.5 trillion) debt, analysts say. President Barack Obama\'s administration has remained tight-lipped about which of its 80 million monthly payments it would make and which it would set aside if the US defaults this week, but experts say it would likely take pains to avoid an actual default on its debt by putting interest payments to bondholders at the top of the priority list. \"Most people in the bond market feel the bonds will be paid off, that they will get priority in payment\" said David Wyss, former chief economist at Standard & Poor\'s. \"This is not like when you shut down the government. You can still spend money up to the amount of revenue you\'re bringing in. You just can\'t borrow.\" Losing out Article continues below Social Security and Medicare recipients, too, are likely to be high on the must-pay list, but likely losers could include federal workers in jobs deemed non-essential, private contractors and state and local governments. Since the US now borrows slightly over 40 cents for every dollar it spends, a failure by Congress to increase the debt ceiling above the $14.3 trillion limit suggests the government could renege on more than 40 per cent of its current obligations. Just five days before the Treasury begins running out of cash to pay all its bills, Congress remained deadlocked over plans to both raise the debt limit and trim federal spending. President Barack Obama warned anew that the credit status and financial credibility of the United States stand in severe jeopardy. \"There are plenty of ways out of this mess, but we are almost out of time,\" Obama said. Treasury, working with the White House budget office, has sketched out a priority plan for payments but officials have refused to provide details, knowing it could touch off a firestorm. They\'re hoping for a compromise soon so it won\'t be necessary. But White House spokesman Jay Carney said Treasury would release some details on payment priorities as the August 2 deadline approached, perhaps over the weekend. Of the $14.3 trillion national debt — the accumulation of decades of deficit spending — some $9.7 trillion is financed through the sale of Treasury bonds, bills and notes to the public. Holders of these securities range from individuals to pension funds, corporations, and foreign governments. The remaining $4.6 trillion in debt represents ‘intergovernmental holdings,\' money one governmental entity owes to another, including assets held in the Social Security Trust Fund. According to Treasury figures, the government will take in $172.4 billion from August 3 to August 31, but is scheduled to pay out $306.7 billion, suggesting a shortfall of more than $134 billion. In addition to $23 billion in Social Security payments due to go out August 3, the government is also scheduled to pay $2.2 billion in Medicare and Medicaid payments. Also, more than $4 billion in scheduled federal salaries are to be paid over the first week in August. Some $87 billion in federal debt is due to be rolled over into new bonds on August 4. Also, Treasury is scheduled to make a $29 billion interest payment to bondholders on August 15.