America’s CEOs plan to send a dire warning to lawmakers Tuesday that the economy faces potential devastation if Congress and the Biden White House cannot reach an agreement to raise the debt ceiling and avoid a default.
In an open letter to President Biden and top Congressional leaders Tuesday, nearly 150 business leaders urged the two sides to act – or face “a devastating scenario … and potentially disastrous consequences,” the letter states. The open letter was first shared with CNN before it was published.
CEOs of major corporations and financial institutions signed the letter. Among the signees are James P. Gorman, Chairman & CEO of Morgan Stanley, David M. Solomon, Chairman & CEO of Goldman Sachs, Adena Friedman, Chair & CEO of the Nasdaq, and Robin Hayes, CEO of JetBlue. It is one of the strongest collective warnings from America’s business sector.
More on the debt ceiling
The United States could default on its debt as soon as June 1 if lawmakers fail to raise the amount of money the US can borrow to pay its debts, Treasury Secretary Janet Yellen has said. President Biden and top Congressional leaders are expected to meet Tuesday to negotiate a deal and prevent a default.
“Failure to resolve the current impasse could easily have more negative consequences. Although the American economy is generally strong, high inflation has created stresses in our financial system, including several recent bank failures. Much worse will occur if the nation defaults on our debt obligations, which would weaken our position in the world financial system,” the letter states.
A default on the nation’s debt could send the economy into a recession, and the stock market could tank. The nation’s unemployment rate could spike and borrowing costs for businesses and everyday Americans would rise. In her second letter in two weeks to Congressional leaders Monday, Treasury Secretary Janet Yellen reaffirmed her warning. She says the US is already feeling the impacts of getting close to the “x date” of June 1.
“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States. In fact, we have already seen Treasury’s borrowing costs increase substantially for securities maturing in early June,” Secretary Yellen wrote Monday.
The last time the US came close to a default was in 2011 – and as a result the US lost its lustrous AAA credit rating. That ended up being a miserable year for the market and the economy, the CEOs noted.
“The stock market still lost 17% of its value for more than a year. Moody’s reported that the heightened uncertainty from this crisis resulted in 1.2 million fewer jobs, a 0.7 percentage point higher unemployment rate, and a $180 billion smaller economy than it otherwise would have — dire impacts that occurred without an actual default, “the letter from business leaders’ states.
A default on the US debt would also impact the US government’s ability to pay out Social Security, Medicare, veterans’ benefits, and the military. The consequences would harm the US’s global leadership position, and ability to defend national security interests.
“This cannot be allowed to happen,” the letter states.