At the very moment that congressional negotiations over the debt ceiling broke down Tuesday, a group of business and economic experts were issuing a dire warning to Rep. Maxine Waters (D-CA) and nine other Democratic members of the House Financial Services Committee about what will happen if Congress fails to raise the debt ceiling this week.
“It would be a recovery killer,” said Scott Talbott, senior vice president of public policy at the Financial Services Roundtable. “Whatever recovery we’re experiencing now, it may be modest, slow, and we may be bouncing along the bottom, but at least we’re moving in the right direction. A default, a real default, would halt that and reverse it.”
James Chessen, chief economist for the American Bankers Association, told the panel, “If there is actually a default, that will send ripples through the economy that will not only affect the credibility of the United States but every business decision that is made here.”
A default would lead to a liquidity crisis “potentially orders of magnitude worse” than 2008, predicted Damon Silvers, policy director of the AFL-CIO. “There will certainly be cascading effects, many of which will be long lasting.”
No Republicans attended the briefing, but the Democratic members heard those dire warnings just a day after after Blackstone Group chairman Tony James told CBS News that Congress is “spinning the cylinder on the gun” by waiting to deal with the debt limit. He also warned that that nothing short of “Armageddon” would visit the U.S. economy if congressional leaders did not reach a deal by November 1.
Although Congress is dealing with the potential crisis only now, business leaders have been warning for months about the potentially calamitous effects of allowing the country to default on its debt or even getting close to the October 17 deadline.
In early October, AT&T chairman and CEO Randall Stephenson called the chance that the U.S. could default on its debt “unthinkable” and “the height of irresponsibility for any public official to consider such a course.” At a Senate Banking Committee hearing last week, Frank Keating, president of the American Bankers Association and a former Republican governor of Oklahoma, warned that the damage from default would have to be measured in hundreds of billions of dollars. “If Congress fails to act and we hit the debt ceiling, we will set off a chain of events that will cover our entire economy and impact all Americans,” he said.
“I sit through meetings now with Republican lobbyists and it’s grim...they made this investment in the Republicans in the House, and this is what they have to show for it.”
But if Keating is frustrated with Congress, in some ways he is just getting the government the ABA has paid for. During the 2012 campaign cycle, the association gave $2.5 million to congressional candidates, with 80 percent, or $2.08 million, going to Republicans. Among the GOP candidates the ABA donated to last cycle are those who championed a strategy of trying to defund Obamacare, including then-candidate Ted Cruz, who received $15,000.
The ABA also gave thousands of dollars to members of Congress who now say the U.S. can go through the debt ceiling without harmful effects, including $2,500 to Rep. Ted Yoho (R-FL), who has said breaking the debt ceiling “would bring stability to the world markets;” $10,000 to Rep. Scott Garrett (R-NJ), who said he won’t vote to increase the debt limit without also defunding Obamacare, and $7,500 to Rep. Mick Mulvaney (R-SC), who told National Journal, “We’re not going to default; there is no default.” The ABA declined to comment on its PAC giving for this story.
But the ABA was hardly alone among business interests that gave more to Republicans than to Democrats in recent cycles, particularly as Democrats pushed regulatory reforms such as the Dodd-Frank Act and Obamacare. According to the nonpartisan Center for Responsive Politics, in the 2012 campaign cycle, the financial services industry gave a collective $276.7 million, with 69 percent going to Republicans and 31 percent to Democrats, while insurance interests gave $4.8 million with 61 percent going to Republicans.
The lopsided nature of business contributions has angered Democrats over the last two campaign cycles in particular, as Tea Party candidates have won seats that once belonged to conservative Democrats and Democratic members have ridden to the rescue of Wall Street on votes like TARP and the 2011 debt ceiling increase, when Republicans would not.
“I wonder how many times we have to go through this before Wall Street gets the idea that when a crisis hits, one party is predominantly the adults in the room and one party is the ideological party that actually drives us up to this ledge?” said Rep. Bill Foster (D-IL) on Tuesday.
A Democratic lobbyist said the current debt ceiling crisis may not change business interests’ giving patterns radically but could lead some groups to focus more on moderate Republicans or stay out of races altogether, if a Tea Party candidate is the only Republican in the field.
“I sit through meetings now with Republican lobbyists and it’s grim,” the Democratic lobbyist said. “To some degree they made this investment in the Republicans in the House, and this is what they have to show for it.”