The Ministry of Finance is preparing for the worst if the debt ceiling is not raised.

The Treasury Department is not set up to pay some of its bills and not others. But it could be forced into that situation if Congress doesn’t raise the debt ceiling soon.


What happens if the government runs out of money to pay its bills?


President Biden and House Speaker Kevin McCarthy keep saying not to worry about it. They met yesterday to discuss raising the federal debt limit. Congress must do this to fulfill its legal obligations. Biden spoke before yesterday’s meeting.


PRESIDENT JOE BIDEN. We still have some disagreements. But I think we can get where we need to go. We both know that we have a serious responsibility.

INSKEEP. “I believe we can do it,” McCarthy said after the meeting. But June 1 is barely a week away. The Treasury Department says that’s the earliest the U.S. could have less money than it needs.

MARTIN: NPR’s Scott Horsley asked what that might look like. Good morning Scott.


MARTIN: So let me start with South Carolina Republican Congresswoman Nancy Mays. He was on MORNING EDITION not too long ago. He offered the US to pay off its existing debts. Let’s hear what he has to say.


Nancy Mace. We can prioritize. The president can prioritize spending. We will not run out to pay the interest on the debt because we get 11 times the interest on the debt in annual tax revenue.

MARTIN: So let me check it out briefly. Is he right?

HORSLEY: If you’re concerned about paying interest on the government’s debt, he’s right. The government will almost certainly continue those payments. And the interest still isn’t due until mid-June. But the government has tens of billions of dollars in other bills to pay before then. And Treasury Secretary Janet Yellen says it’s very likely the government won’t have enough money to cover all those bills unless Congress raises the debt limit soon. Remember that tax revenues account for only 75 cents of every dollar the government spends. The rest must be borrowed. And if the government can’t borrow more, some bills will go unpaid.

MARTIN: Which sounds like the lifestyle of many families, right? I mean, if you don’t have enough money to pay all your bills, you prioritize some over others. So how will the government decide who gets paid and who doesn’t?

HORSLEY: Yes, the government has a very tough call. Who are you stiffing, Social Security retirees, the military, doctors who care for Medicare patients, taxpayers waiting for their money back? Bondholders are paid through a separate computerized system, so they can be easily prioritized. But Yellen told a Senate committee this spring that trying to pay some government bills and not others is both risky and untested.


JANET YELLEN: The government, on average, makes millions in payments every day. And our systems are designed to pay all our bills on time, not pick and choose which bills to pay.

HORSLEY: That said, the Treasury Department could be forced into that position in just about nine days. Yellen told NBC over the weekend that if the debt ceiling is not raised, it will be difficult to make choices about which bills will remain unpaid. Now the government has not said much about how it will go about it. It would be a mess. There may be legal challenges. One option would be to keep paying the bills so the tax money is available. So maybe someone expecting a Social Security payment on June 2nd will get paid on June 3rd or June 5th instead.

MARTIN: How much long-term damage will that do?

HORSLEY: Well, when an individual makes late payments, his credit rating takes a hit. And that makes it more expensive to borrow in the future. The same could happen to the federal government. Now, if bondholders continue to be paid, it may not be considered a technical default. But Yellen said the government’s failure to pay any bills would be another name for default. And, you know, it’s likely to affect the financial markets. Bondholders might reasonably wonder how long they’ll keep paying as long as grandmas and servicemen keep their checks. That’s not a good look politically.

MARTIN: It certainly isn’t. That’s NPR’s Scott Horsley. Scott, thank you so much.

HORSLEY: You’re welcome.

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