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The Big Take

The Debt Ceiling Is the Risk Wall Street Doesn’t Want to Think About

The consequences of the government defaulting on its bills are so terrible that investors just assume a deal will happen.

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Conventional wisdom says the US will avoid a devastating federal payments default later this year. But conventional wisdom has proved spectacularly wrong months ahead of shocks that upended the world in recent years: the failure of Lehman Brothers, the 2016 US election, the global spread of Covid-19.

The source of this potential shock is a procedural quirk of the US government that’s intersected with soaring partisan hostility. The federal debt has hit a legal limit imposed by Congress, and Republicans in the House of Representatives say they want concessions from Democrats and the White House before raising it. Such standoffs aren’t new. But lawmakers have never failed to pass an increase or suspension of the debt ceiling before the Department of the Treasury ran out of cash to make good on US obligations.