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WASHINGTON — The economy faced a greater threat from hitting the debt ceiling than from a government shutdown, experts said this month.
Unless the federal borrowing limit was raised by October 17, the country faced a default on its loans and an ensuing global crisis. The scenario would also mean no cash for Social Security checks and military pay, among other expenses.
“The debt ceiling is a thermonuclear explosion,” former Utah Gov. Jon Huntsman told CNN, “compared to the hand grenade” of the shutdown.
More than 230 business organizations, including the U.S. Chamber of Commerce, wrote to legislators at the end of September exhorting them to raise the borrowing limit and shift their focus to longer-term budget concerns.
William McComb, chief executive officer of Fifth and Pacific (formerly Liz Claiborne), wrote in The Daily Beast, “An honorable Congress knows in its bones that the full faith of the United States of America is at stake. The mere threat to withhold authorization, in fact, is as damaging to our credit rating as actually defaulting. Sure, it’s great political theater, but it does lasting damage to America’s reputation and credibility and makes one wonder how long the rest of the world will allow the dollar to remain the global reserve currency.”
A survey of the Business Roundtable, which comprises CEOs of large companies, found that half of the chief executives were stalling hiring because of the impasse in Washington.
“We are not supporting either side,” Boeing Co. CEO Jim McNerney said at a briefing last month. “We want leaders to lead and compromises to be found because not doing that would have a serious impact on the economic growth of this country.”
But political adversaries were dug in, with House Speaker John Boehner (R., Ohio) saying, Senate Democrats “slammed the door on reopening the federal government by refusing to talk.”
For his part, President Barack Obama blamed House Republicans for tying continued government funding to scaling back or derailing the Affordable Care Act. “They’ve shut down the government over an ideological crusade to deny affordable health insurance to millions of Americans,” Obama said.
The government shutdown furloughed more than 800,000 federal workers, as many nonessential government agencies ceased operations.
Prior to the shutdown, factories were rebounding, as the manufacturing sector expanded in September for the fourth consecutive month. Bradley Holcomb, chair of the Institute for Supply Management’s Manufacturing Business Survey Committee, said purchasing managers were “generally positive and optimistic about increasing demand and improving business conditions.”
But consumer confidence slid in September to its lowest level since April, suggesting that household spending may take time to come back, according to the Thomson Reuters/University of Michigan preliminary index of consumer sentiment.
Likewise, The Conference Board’s Consumer Confidence Index, which had increased slightly in August, slipped in September. “Concerns about the short-term outlook for both jobs and earnings resurfaced, while expectations for future business conditions were little changed,” said Lynn Franco, the Conference Board’s director of economic indicators.
“Consumers’ assessment of current business and labor market conditions, however, was more positive. While overall economic conditions appear to have moderately improved, consumers are uncertain that the momentum can be sustained in the months ahead.”
