Wall Street Is Counting on a Debt Limit Trick That Could Entail Trouble

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...