Today, the House will vote on a bill that would authorize the Treasury Department to prioritize debt payments in the event that the debt limit is exceeded. The bill has no chance in the Senate and would be vetoed by the president in the unlikely event that it landed on his desk. So, the bill is a 100% ass-covering exercise. But will it really cover their ass? It seems to me that the mere discussion of prioritizing debt payments might be enough to warrant another downgrade in our credit rating.
Just imagine if you loaned money to someone and then overheard them talking about how they couldn’t pay off all their debts. You’d like to know that your loan is a high priority, but how willing would you be to make another loan?
The credit rating agencies operate with the same logic. Any discussion of partial default is ample reason to downgrade our rating.