The Obama administration said on Thursday it would be impossible to prioritize debt payments over other government obligations in the event Congress fails to raise the nation's $16.7 trillion debt ceiling and the Treasury runs out of cash.
A senior Treasury official told journalists that favoring bills to creditors over others would be unworkable and the administration was completely opposed to this approach, which some Republicans on Capitol Hill have embraced.
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Separately, in a report detailing the potential economic impact of a default, the Treasury warned failing to pay the nation's bills could punish American families and businesses with a worse recession than the 2007-2009 downturn.
It said a default could force up borrowing costs, weaken investment and curb growth, doing harm to the economy that could last for longer than a generation.
"A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket," the Treasury Department said.
"The negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse," it said.
(Reporting by Jason Lange and Alister Bull)