The Republican-controlled house passed the Full Faith and Credit Act today. The bill would direct the government to only pay certain creditors if the country exceeds the debt limit, which it is expected to do if the debt ceiling isn't raised again in October.
The Full Faith and Credit Act, which passed by a 221-207 margin, would force the White House to pay its debts in order. First in line to receive payment would be recipients of Social Security and holders of U.S. bonds. A large amount of U.S. bonds are owned by foreign governments such as China. Payments to Medicare and military benefits, among many other programs, would be taken care of later, if there is enough money to go around, according to The Huffington Post.
The bill has derisively been called the "Pay China First" bill by Democrats and is likely to meet its demise in the Democratically-controlled Senate or be vetoed by President Barack Obama, according to The Huffington Post.
Republicans have argued that the White House hasn't done enough to assure that the country will avoid hitting the debt ceiling once again and that this bill is intended to make sure the president takes action.
"This legislation puts that responsibility on the president," said Dave Camp, chairman of the House Committee of Ways and Means.
It is important that the U.S. not miss out on any payments to bondholders, doing so would cause extreme havoc to the global economy, according to Michael Feroli, chief economist at JP Morgan. Feroli said that a missed payment to bondholders "would be like the financial market equivalent of that Hieronymous Bosch painting of Hell."
The White House has warned that this bill is an unnecessary risk for the already fragile U.S. economy.
"This bill would threaten the full faith and credit of the United States, cost American jobs, hurt businesses of all sizes and do damage to the economy," the White House said. "It would cause the nation to default on payments for Medicare, veterans, national security and many other critical priorities. This legislation is unwise, unworkable and unacceptably risky."
Democrats in the House argued that the bill would make payments to China a priority over domestic debts.
"Just yesterday Speaker Boehner admitted this bill means the United States will voluntarily act like a bankrupt company and pay China before we pay our troops," House Minority Whip Steny Hoyer said.
Republicans have yet to offer an additional budget plan than the one they proposed two years ago that was rejected by Democrats, according to the Washington Post. Many in Washington were hoping to get a deal done regarding the debt ceiling well before the last minute, Democrat Patty Murray is arguing that this bill helps make that impossible.
"Instead of working with us to avoid another manufactured crisis, House Republicans now seem like they are actively working to drive us toward one," Murray said.
