As the clock ticks on a debt ceiling deal, SEC chair warns of ‘uncharted waters’

Since the U.S. hit its borrowing limit in August, the Treasury Department has been using “extraordinary measures” to stave off a crisis and temporarily allow the government to pay its bills. But Treasury Secretary Janet Yellen has said it can only do so through Oct. 18.

If the debt ceiling is not raised or suspended before then, the U.S. government will default on its debt for the first time ever—an unprecedented event that would ripple throughout the economy in disastrous fashion, should it happen. “I think we’d be in very uncharted waters” if a default does occur, Securities and Exchange Commission Chair Gary Gensler said at an oversight hearing held in the U.S. House of Representatives on Tuesday.

For weeks now, congressional lawmakers has been at ends with one another over how to avoid a debt crisis.

Republicans have committed to not voting to raise the debt limit, instead opting to try to force the Democratic Party to rally its members to handle the situation through a process called budget reconciliation. But President Joe Biden and Senate Majority Leader Chuck Schumer have demurred, calling the process too risky. On Tuesday, Schumer said, “It’s not too late, but it’s getting dangerously close” to address the debt limit, according to CNN. The Senate is scheduled to vote Wednesday on suspending the debt limit through the end of 2022.

Yellen all the while has been vocally advocating for Congress to expedite its negotiations over the debt ceiling, warning Tuesday that she would “fully” expect a default to cause a recession.

“It would be catastrophic to not pay the government’s bills, for us to be in a position where we lacked the resources to pay the government’s bills,” Yellen said Tuesday on CNBC.

The treasury secretary’s advocacy for a deal comes alongside a growing chorus of similar calls from Wall Street, where, though many expect the debt ceiling to be either raised or suspended, concern does appear to be on the rise.

JPMorgan CEO Jamie Dimon called a U.S. default “potentially catastrophic” in an interview with Reuters that was published late in September. And while the three big credit rating agencies—S&P Global Ratings, Fitch Ratings, and Moody’s—do believe the U.S. will resolve the debt limit in time, all have issued reports in recent days outlining some of the fallout if it does not.

Gensler, a veteran of Goldman Sachs, the Treasury Department, and the Commodity Futures Trading Commission, told lawmakers Tuesday that there needs to be an understanding in relation to the possibility of a default that “markets can do things that we don’t expect.” Said Gensler, “God willing, everything works out, but if we were to end up with a default, we will have a whole lot of uncertainty.”