The debt limit: What if…

If Congress fails to lift or suspend the limit on U.S. government borrowing soon, the U.S. Treasury will not have enough cash to pay its bills sometime in October or November. In the past, Congress has always raised the debt limit, sometimes just in time to avoid a default. That may happen again this year. Indeed, there is lots of pressure on Congress to act promptly.

But what if this time is different? What if the Treasury runs out of cash and has to delay paying government employees, Social Security beneficiaries, Medicare health providers, or various contractors? What if Treasury delays an interest payment? What happens then?

A lot turns on how financial markets react. Will the stock market plunge? And what about the functioning of the Treasury market? Would investors shun short-term Treasuries? Would Treasury auctions proceed smoothly? Could the Fed step in? Would it?

The Hutchins Center at Brookings hosted traders and strategists from Wall Street firms as well as former Federal Reserve officials to discuss these and related questions as Congress wrestles with this politically charged issue.

During the live event, the audience submitted questions at sli.do using the code #DebtLimit or on Twitter using the hashtag #DebtLimit.