Politico

SEC chair warns U.S. debt default would shock markets


Securities and Exchange Commission Chair Gary Gensler warned Congress Tuesday that a U.S. debt ceiling breach threatened to unleash significant volatility and disruption in financial markets, as lawmakers remained at odds over how to avoid a government default.

Gensler — the top U.S. regulator overseeing Wall Street — said at a House Financial Services Committee hearing that the failure to raise Washington’s borrowing limit would create uncertainty for banks, mortgages, automobile loans and other financial instruments reliant on U.S. Treasury bills. The federal government borrows money to cover its operations and debts by issuing Treasury securities to investors.

“I think we’d be in very uncharted waters,” Gensler said, noting that Treasurys are the foundation of U.S. capital markets. “Though we don’t know for sure, we’d have significant volatility in the markets, and we’d see some breakages in the system.”

Treasury Secretary Janet Yellen has warned that Treasury could run out of money by Oct. 18. Earlier Tuesday, she said on CNBC that the U.S. might go into a recession if there were a debt limit breach.

The Senate is expected to vote later this week on a House-passed bill to suspend the debt ceiling through the 2022 midterms, but Republicans are expected to block the measure.

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