In the coming conflict over whether to raise the debt limit, Wall Street and some businesses worried that the looming “fiscal cliff” will jeopardize markets are facing off against Republicans who prefer to keep the debt limit in place so that the government will be forced to cut spending.
According to the Treasury Department, the government will reach its $16.4 trillion borrowing limit by January 1.
Businesses and Wall Street are concerned that if the debt limit is not raised, credit rating agencies may hit the U.S. with another downgrade, just as after the debt limit crisis of 2011.
Rob Nichols, president and chief executive officer of the Financial Services Forum, said, “The downside risk here is significant if we don’t include it. It’s very sensible to include that, so we don’t roil the global capital markets any further.”
The U.S. Chamber of Commerce agrees. Ken Bentsen, head of the Washington office at the Securities Industry and Financial Markets Association (SIFMA), says he also favors raising the debt limit: “As a practical matter, it would make sense to wrap it in. You could move on to deal with tax reform and fiscal reform and all other things… and not have this looming cataclysmic event hanging over you.”
Negotiations in 2011 wound up creating a “super-committee” of House and Senate negotiators. The idea was that if they failed to cut the deficit by at least $1.2 trillion, automatic “sequestration” would cut spending, which is exactly what happened.
Republicans remember that and don’t want to go down that path again. Rep. Jim Jordan (R-OH), chairman of the House Republican Study Committee, who opposed the last hike, asserted, “If you would raise the debt ceiling in some kind of agreement here in the lame duck, you would have raised the debt ceiling twice and not cut any spending. To me, that’s a huge problem.”
Rep. Tim Huelskamp (R-KS), agreed: “The agreement they would come up with [in the lame duck] would be too small and not be substantial enough. The debt deal was just a real disaster for most of my colleagues. To wrap that into what could be a tax increase proposal… makes it harder to pass.”
He continued that market turmoil was less dangerous than the nation’s fiscal debt: “I never thought the stock market was a very accurate predictor of economic reality. I’d rather listen to Main Street than Wall Street.”