Concerns about a failure to raise the US debt limit before the government runs out of money to pay its bills have subsided as the Biden administration and congressional Republicans have struck a deal to raise it.

But this chapter will still go down in history as just

one in a growing line of contentious debt limit episodes in recent decades. The

debt limit was originally enacted to simplify the process of issuing debt to fund government spending.

But what began as an attempt at efficiency has turned into a frequent game of political brinkmanship

with the opposition party using the debt limit to extract concessions from the

President's party in exchange for agreeing to raise it. I'm Allison Nathan and this

is Goldman Sachs exchanges.

On this special episode, we're breaking down the daunting debt limit dynamics that were the topic of our most recent top of mine report, now available on GS.com.

We dig into whether the repeated brinkmanship around raising the debt limit

could ultimately undermine the value proposition of U.S. assets.

We speak with Stephen Kaplan, Associate Professor at George Washington University, Alec Phillips,

our Chief Political Economist, and David Beers, former head of sovereign credit ratings at

SMP who oversaw the rating agency's US

credit rating downgrade in 2011 after another disruptive debt limit episode.

Kaplan argues that the constant wrangling over the debt limit creates the tail

risk however small it may be of a US sovereign debt default. There's a tendency I

think over time for the market to shrug this off as political theater and yeah there's gonna be

political wrangling and brinkmanship but ultimately is any politician

gonna really want to risk a default. And if we think about that from a standpoint of risk,

the balance of risk would suggest, yeah, political rationalism and prudence would pass an increase

the debt ceiling.

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