The Obama administration is trying to enlist Wall Street executives in the debate over increasing the debt ceiling and convince congressional Republicans that a US default would be catastrophic for markets.
Tim Geithner, US Treasury secretary, has been leading the campaign for the White House, urging executives such as Vikram Pandit of Citigroup, Jamie Dimon of JPMorgan and Brian Moynihan of Bank of America, as well as top insurance industry executives, to point out the dangers of “walking up to the brink” on debt, according to an administration official.
While congressional leaders, including Senator Chuck Schumer of New York, are encouraging executives to speak out against the vote on the debt ceiling being dragged out too long, the administration is urging executives to air their concerns over the debt ceiling to rank-and-file Republicans behind closed doors, where those conversations might have the most impact.
“We are trying to get people in the financial markets to educate Republicans, particularly the new members, that to even threaten to walk up to the brink on this . . . things won’t just revert back to normal,” the administration official said.
“I think too many folks there view it as the government shutdown. That you can turn the faucet off and on. Too many don’t understand the distinction [between the budget debate and the debt ceiling].”
The White House effort marks the first important test of whether President Barack Obama’s efforts to improve relations with the business community are bearing fruit. A move by the country’s top chief executives to endorse the administration’s point of view would not only potentially satisfy their own self-interest, but it would underscore that in fundamental policy areas, business may feel uncomfortable with the anti-government rhetoric by Tea Party conservatives.
A vote to increase the $14,300bn debt ceiling is expected to occur in coming months. While the US would not immediately default on its obligations, officials said a default could occur as early as July.
Even if business executives agree that the forthcoming vote on the debt ceiling ought not to be treated with the same level of brinkmanship as last week’s vote on the 2011 budget – which was agreed about 45 minutes before a government shutdown – there might be reasons for corporate America to stay out of the fray, according to one Republican business lobbyist in Washington.
The lobbyist said that for some big business lobby groups there was still too much uncertainty about what a possible “grand bargain” between the White House and congressional Republicans might look like. In his speech on fiscal reform on Wednesday, Mr Obama reiterated calls to close corporate tax loopholes, a proposal that will be controversial with many large US companies.
Some business interests also staunchly support the Republican goal of making deep cuts to the deficit as a way to improve America’s fiscal outlook.
According to an aide to Mr Schumer, however, even those who espouse Republican ideas of reform do not wish to see it enacted by “playing chicken” with the debt ceiling and destabilising the markets. “A lot of the same people who care about lifting the debt ceiling also worry about long-term deficit reduction. But one is a near-term worry, while the other is a more general worry,” said the aide.
At least one executive has made his views clear. Mr Dimon said recently that a default by the US would be “catastrophic”.
Democrats are not the only ones reaching out to business. The House speaker, Republican John Boehner, who has acknowledged that a default by the US would send the economy into a “tailspin”, has been in talks with Wall Street executives about how far Republicans could go to use the debt ceiling as leverage for spending cuts before it affects interest rates, according to a report in Politico.
A spokesman said: “Mr Boehner has made it clear that the American people will not accept an increase in the debt limit that is not accompanied by real cuts and serious reforms to address Washington’s out-of-control spending.”
Mr Boehner’s alleged behind-the-scenes efforts were slammed by Mr Schumer, who said: “The speaker seems to be testing out how far he can venture on to a frozen lake before the ice breaks. He should listen to business leaders who are telling him to watch his step.”