A report released today by Goldman Sachs says that if push comes to shove, the federal government will pay its lenders before it pays Social Security and Medicare beneficiaries. Debt service “should be seen as the top claim on government resources in most cases,” says the Goldman analysis.
On one hand, the idea that lenders come first is blindingly obvious. Just look at what happened last summer, when the government tied itself in knots to make sure it didn’t default on bond payments. Of course lenders stand at the head of the line for taxpayers’ money. On the other hand, if things got really bad in the U.S.—as in Greek bad—the priority of payments could start to flip. At some point, as we have seen in Athens, citizens rise up against lenders and insist that the country protect its own ill and elderly before it pays faceless creditors at home and abroad.