Top Business Leaders Plea For Debt Ceiling Raise Ahead Of ‘Complete Catastrophe’ - Forbes

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Topline

Leaders of some of the biggest financial businesses in the U.S. issued dire warnings during a meeting with President Joe Biden on Wednesday about the impact of the country potentially defaulting on its debts, urging Congress to immediately take action to raise the debt ceiling as Republicans and Democrats remain deadlocked on how to move forward.

Key Facts

During a Q&A with Biden at the White House, JPMorgan Chase CEO Jamie Dimon said failure to raise the debt ceiling, which would cause the U.S. to default on its debt payments, would at best lead to an American recession but could amount “to a complete catastrophe for the global economy.”

Dimon added he believes the debt ceiling amounts to a morality issue, saying the U.S. failing to make payments it agreed to make projects a bad image to the American public.

Jane Fraser, CEO of Citigroup, said the congressional standoff amounts to “simply playing with fire,” adding that “even small distortions” to the Treasury market can end up costing taxpayers tens of billions of dollars in the long term.

Nasdaq head Adena Friedman said even a day or two of default would lead to the stock market reacting “very, very negatively” and ultimately lead to higher costs for consumers.

Treasury Secretary Janet Yellen, who also spoke at Wednesday’s meeting, is sticking to an October 18 deadline for when the Treasury’s funds will drop to an insufficient level to pay the nation’s bills—a scenario Yellen said is “unnecessary and must be avoided at all costs.”

After denying Democratic efforts to raise the debt ceiling, Senate Majority Leader Mitch McConnell (R-Ky.) proposed a compromise on Wednesday that would raise the debt ceiling until December if Democrats agree to keep spending at current levels and use the reconciliation process to approve a longer-term raise for the budget ceiling on their own.

What To Watch For

The immediate impact of a national debt default could mean payments for programs like Social Security and Medicare will be cut off, but longer-term impacts remain unclear. What the CEOs agreed on, though, is that a national debt default would lead to major impacts for American consumers, most likely through rising interest rates and diminishing retirement accounts.

Crucial Quote

“We don’t need a catastrophe of our own making to undermine the progress that is under way,” Fraser said of the markets.

Key Background

Republicans in the Senate have continually blocked Democratic efforts to raise the debt ceiling through regular legislative action, with McConnell (R-Ky.) saying the GOP is hoping to use the debt ceiling fight to delay movement on a $3.5 trillion spending bill proposed by Democrats. Republicans are instead demanding Democrats raise the debt ceiling through the budget reconciliation process, which wouldn’t require any Republican support. Senate Majority Leader Chuck Schumer (D-N.Y.) has said it’s too late to raise the debt ceiling through reconciliation, which is a complex process that could take weeks, but McConnell’s offer could buy them more time if they agree. Democrats have insisted on working with Republicans on a bipartisan agreement to raise the debt ceiling, since much of the debt was taken out during Republican administrations. But McConnell said Wednesday that would only be possible if Democrats slash their spending proposal, saying they must “abandon their efforts to ram through another historically reckless taxing and spending spree.” Another option, which President Joe Biden floated as a possibility, is for Democrats to eliminate the filibuster for debt ceiling issues, but doing so would require all Senate Democrats to support the action, and centrist Sen. Joe Manchin (D-W.Va.) has already said he’s against dropping the filibuster.