Chief executives from major financial institutions met with US President Barack Obama on Wednesday and warned of “adverse” consequences if government agencies remain closed and if lawmakers failed to raise the US debt ceiling by the middle of this month.
Congressional Republicans and the White House are in a stalemate over government funding, which has forced the first government shutdown in 17 years.
Republicans, seeking to stop Obama’s signature health care act, have tied spending bills for the fiscal year that started on Tuesday to defunding or delaying the law, a course rejected by the president and his fellow Democrats.
The two sides are also at odds about an Oct. 17 deadline to raise the US borrowing limit.
Goldman Sachs chief executive Lloyd Blankfein, while stressing that the business leaders who met with Obama represented diverse political views, implicitly criticized Republicans for using their opposition to the healthcare law as a weapon that could lead to a US default.
“You can litigate these policy issues. You can re-litigate these policy issues in a political forum, but they shouldn’t use the threat of causing the US to fail on its ... obligations to repay on its debt as a cudgel,” Blankfein said.
While the government closure has already had repercussions from frustrated tourists turned away from national parks to canceled stops on Obama’s Asia trip, the deadline for raising the nation’s debt limit poses a much graver risk.
If Congress fails to raise the US$16.7 trillion borrowing cap, the US would go into default, likely triggering financial market shockwaves around the world.
“There’s no debate that the seriousness of the US not paying its debts ... is the most serious thing we have, and we witnessed that in August ’11 and you saw the ramifications: a slowdown in the economy,” Bank of America chief executive Brian Moynihan said.
The US came close to default during a similar political crisis in 2011. That standoff prompted a first-ever downgrade of the US’ credit rating.
Conservative Republicans have signaled they will take the same tactic on the debt limit this year as they did on government funding by seeking to dismantle or put off the health care law. The president has refused to negotiate over raising the debt limit. Business leaders made clear the financial world wanted to avoid the risk of the government not paying its bills.
“There is precedent for a government shutdown. There’s no precedent for default. We’re the most important economy in the world. We’re the reserve currency of the world,” Blankfein said.
Business leaders wanted Washington to understand “the long-term consequences of a shutdown ... certainly the consequences of a debt ceiling [not being raised], and we all agree that those are extremely adverse,” he said.
Meanwhile, United Technologies Corp says it may furlough more than 5,000 workers if the US government shutdown continues into next month.
The company said on Wednesday that its Sikorsky division, which makes Black Hawk helicopters, would be hit first. It expects nearly 2,000 employees, including those employed at facilities in Connecticut, Florida and Alabama, will be furloughed on Monday.
The Hartford, Connecticut-based manufacturer said it would halt some defense manufacturing because government inspectors themselves have been furloughed. That leaves it without the necessary federal approvals to make military products.
If the shutdown continues through next week, the furloughs would extend to its Pratt & Whitney and UTC Aerospace Systems division, bringing the total number of employees on hold up to 4,000. That number could exceed 5,000 if the shutdown stretches into next month.
United Technologies employs about 218,300. Of its annual revenue of US$57.7 billion in 2012, US$10.1 billion came from the US government.
“This is what happens when House [of Representatives] Republicans decide that political gamesmanship is more important than people’s jobs,” Connecticut Governor Dannel Malloy, a Democrat, said. “It’s unconscionable that so many working families would be unfairly put in this situation.”
Members of Connecticut’s Democratic Congressional delegation also called for House Republicans to end the budget impasse.
“These wounds are tragically self-inflicted and dramatize the cumulative and increasing destructive economic effects of the shutdown,” Senator Richard Blumenthal said.
US Representative Rosa DeLauro, whose district includes Sikorsky’s headquarters, said: “The political games must end to keep these hardworking men and women on the job, prevent further pain for working families and end the damage it is inflicting on our economy.”