My suggestion to Dems for handling the debt ceiling: IGNORE IT

WASHINGTON — When Janet L. Yellen was Federal Reserve chair in 2014, she faced a grilling from Republicans about whether the federal government had a plan if the nation’s borrowing limit was breached and measures to keep paying the country’s bills were exhausted.

Ms. Yellen, appearing at a congressional hearing, outlined a dire scenario in which financial institutions might try to make payments that they could not cover, because the Treasury Department was out of money, leading to a cascade of bounced checks. She pushed back against the notion held by some Republicans that an economic meltdown could be averted, warning that there was no secret contingency plan.

POLITICS

How the Federal Debt Ceiling Works and Why It Matters

Congress faces a looming deadline to raise the debt ceiling and prevent a default on the national debt

By James Benedict and Kate Davidson
https://twitter.com/jamesgbenedict
https://twitter.com/KateDavidson
kate.davidson@wsj.com
September 24, 2021

Congress must reach a deal to raise the federal borrowing limit, or debt ceiling, before the government runs out of money to pay its bills by mid-October. The House passed a measure keeping the government funded until early December and suspending its borrowing limit through 2022, but the bill faces an uphill battle in the Senate.

The debt ceiling came out of the need to accrue more debt during the world wars of the 20th century, prior to which Congress had to specifically approve borrowing for each purpose. Since then, the limit has been raised or modified 98 times, according to the Congressional Research Service. Despite partisan disagreements, Congress and the president have never allowed the U.S. to default on its debt.

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The United States could plunge into an immediate recession if Congress fails to raise the debt ceiling and the country defaults on its payment obligations this fall, according to one analysis released Tuesday.

Mark Zandi, chief economist at Moody’s Analytics, found that a prolonged impasse over the debt ceiling would cost the U.S. economy up to 6 million jobs, wipe out as much as $15 trillion in household wealth, and send the unemployment rate surging to roughly 9 percent from around 5 percent.

Lawmakers in both parties agree that the debt ceiling must be raised to avoid economic calamity, but their standoff over how to do so has intensified. Despite the national debt increasing by close to $8 trillion under President Donald Trump, Republicans have been adamant that they will refuse to help Democrats increase the debt ceiling, in opposition to President Biden’s spending plans.

The Treasury Department has said it will exhaust its “extraordinary measures” to pay the U.S. obligations sometime in October, giving lawmakers little time to act to head off calamity.

Section 4

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.