If Debt Limit Is Breached, Wall St. Wants Priority. Yellen Is Balking.

[dalton99a]

https://www.nytimes.com/2023/01/30/business/economy/wall-street-debt-limit.html
https://archive.ph/QXegL

Wall Street Is Counting on a Debt Limit Trick That Could Entail Trouble
If the debt limit is breached, investors expect Treasury to put bond payments first. It’d be politically and practically fraught.
By Jeanna Smialek, Jim Tankersley and Joe Rennison
Jan. 30, 2023, 12:16 p.m. ET

Washington’s debt limit drama has Wall Street betting that the United States will employ a fallback option to ensure it can make good on payments to its lenders even if Congress doesn’t raise the nation’s borrowing limit before America runs out of cash.

But that untested idea has significant flaws and has been ruled out by the Biden administration, which could make it less of a bulwark against disaster than many investors and politicians are counting on.

Many on Wall Street believe that the Treasury Department, in order to avoid defaulting on U.S. debt, would “prioritize” payments on its bonds if it could no longer borrow funds to cover all its expenses. They expect that America’s lenders — the bondholders who own U.S. Treasury debt — would be first in line to receive interest and other payments, even if it meant delaying other obligations like government salaries or retirement benefits.

Those assumptions are rooted in history. Records from 2011 and 2013 — the last time the U.S. tipped dangerously close to a debt limit crisis — suggested that officials at the Treasury had laid at least some groundwork to pay investors first, and that policymakers at the Federal Reserve assumed that such an approach was likely. Some Republicans in the House and Senate have painted prioritization as a fallback option that could make failure to raise the borrowing cap less of a disaster, arguing that as long as bondholders get paid, the U.S. will not experience a true default.

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[Fiendish Thingy]

1. The debt ceiling won't be breached if Biden keeps a stiff spine of steel.

No negotiations, let the clock tick down to the wire, send the markets into turmoil, and, if the Republicans still don’t act, declare the debt ceiling unconstitutional, order Yellen to pay all the bills, and ignore any SCOTUS rulings to the contrary.

Biden should welcome the full on, three branch constitutional crisis and certain impeachment hearings that would arise from such a bold, courageous action.

He would secure his place in the history books and save the world economy at the same time.

[TheRealNorth]

2. Wall Street can fuck off...

But having said that, it makes sense to make the bond payments to prevent interest rates from skyrocketing. But I don't give a shit otherwise.