Editor’s Note: The following is the written testimony offered to the U.S. Congress Joint Economic Committee on May 17, 2023.
Chairman Heinrich, Vice Chairman Schweikert, and members of the Committee,
My name is Wendy Edelberg, and I am the director of The Hamilton Project and a senior fellow at the Brookings Institution. Thank you for this opportunity to discuss how a debt ceiling crisis could harm American families and businesses.
While greatly uncertain, the effects of allowing the debt limit to bind could be quite severe, even assuming that principal and interest payments continue to be made. If Treasury wanted to be certain that it always had sufficient cash on hand to cover all interest payments, it might need to cut non-interest spending by 35 percent or more. If instead Treasury fails to fully make all principal and interest payments—because of political or legal constraints, unexpected cash shortfalls, or a failed auction of new Treasury securities—the consequences would be even more dire.
The workarounds that have been proposed—the platinum coin, increasing borrowing despite the debt limit, prioritizing payments—either bring significant legal uncertainty or are not sustainable solutions. These unlikely workarounds do not avoid the chaos that is inherent to the debt ceiling binding.
The only effective solution is for Congress to increase the debt ceiling without delay or, better yet, abolish it.