The Weekly Standard provides an example of the choices that could be made:
[It is projected that] there will be $172 billion in federal revenues in August and $307 billion in authorized expenditures. That means there's enough money to pay for, say, interest on the debt ($29 billion), Social Security ($49.2 billion), Medicare and Medicaid ($50 billion), active duty troop pay ($2.9 billion), veterans affairs programs ($2.9 billion).You can get all the cuts you need right there in the last 3 items. DoE, EPA, and HUD can simply be disbanded and their assets sold. HHS can be cut in half.
That leaves you with about $39 billion to fund (or not fund) the following:
Defense vendors ($31.7 billion)
IRS refunds ($3.9 billion)
Food stamps and welfare ($9.3 billion)
Unemployment insurance benefits ($12.8 billion)
Department of Education ($20.2 billion)
Housing and Urban Development ($6.7 billion)
Other spending, such as Departments of Justice, Labor,
Commerce, EPA, HHS ($73.6 billion)
However, the President announced today he is unsure he wants to pay Social Security recipients if the Republicans don't tack a trillion dollar tax increase on top of Obamacare. He said he might choose to take away the dog food Republicans have been force feeding to Grandma:
I cannot guarantee that those [Social Security] checks go out on August 3rd if we haven't resolved this issue, because there may simply not be the money in the coffers to do it.Mr. President, be serious. At the end of 2010 the Social Security Trust Fund had a surplus of 2.6 trillion dollars. So, even if we decided not to pay Social Security out of the general fund, as was demonstrated above that we could, you could just cash in some government bonds. What?! Social Security payouts are just another form of interest on our debt?
Well, then, I guess you are right, we'd better pay the foreign creditors first.
PS, It's true we couldn't immediately defund DoE, EPA, HUD and HHS. in exchange for their demise we should raise the debt limit enough to give give all the employees a severance package and cover an orderly winding down of their operations before the 2012 elections. Disbanding BATFE will pay the interest on that.