By Alexander Bolton - 07/12/11 01:27 AM EDT
Democratic leaders are pressing Wall Street and the business community to urge Republicans to soften their demands and strike an agreement on raising the debt limit.
The efforts began in earnest shortly before the July 4 weekend, according to Senate Democratic Whip Dick Durbin (Ill.), by which time congressional negotiators had hoped to have the framework of a deal in place.
Policymakers have expected for months that the financial markets would grow volatile as the Aug. 2 deadline for averting a national default approached.
Senate Democratic Policy Committee Chairman Charles Schumer (N.Y.) predicted Monday that market jitters would increase the pressure on GOP negotiators to agree to tax increases in a deficit-reduction package.
“When we get close, when the bond markets start to get a little jittery, God forbid, the pressure is going to fall much greater on them than us, and I think that will bring us to the table for a larger deal,” Schumer said Monday on MSNBC’s “Morning Joe.”
Senate Democratic leaders, such as Durbin, warn that as few as 30 bond traders could send the economy into a tailspin if they decided that the federal government would default on Treasury bills.
That effort seems to have gained some traction.
Business groups including the U.S. Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable plan to send a letter to Capitol Hill on Tuesday pushing lawmakers to avoid a default.
A draft document obtained by The Hill warned that failure to raise the debt limit in time would throw markets into “disarray.”
The letter also urged political leaders to agree to a plan “to substantially reduce our long-term budget deficits with a goal of at least stabilizing our nation’s debt as a percentage of GDP.”
But early drafts have left some Republicans grumbling because business groups did not take a hard line against raising taxes or closing niche corporate tax breaks, which President Obama has demanded.
Democrats are irritated that business leaders readily voice their concerns in private meetings over a potential default but aren’t willing to take on their allies in the GOP publicly. Instead, these leaders have focused their public statements on the need for Congress to reduce the deficit.
Obama, who has spoken extensively to business leaders on the subject, voiced his disappointment in a news conference Monday.
“What I’ve found is that they are somewhat hesitant to weigh in on some of these issues, even if they’re willing to say something privately to me, partly because they’ve got a whole bunch of business pending before Congress, and they don’t want to make anybody mad, you know,” Obama told reporters.
A Senate Democratic aide said: “Privately, many business leaders express great worry over the lack of seriousness with which many Republicans treat the possibility of default. Publicly, they frequently feel compelled to pay lip service to the general need to do something about the deficit.”
Lobbyists who represent major corporations that could lose millions from the stock market turmoil and the higher interest rates associated with a default have been hesitant to jump into the charged debate.
Vic Fazio, a senior lobbyist at Akin Gump Strauss Hauer & Feld, said K Street has preferred to leave it to congressional leaders and media outlets to inform rank-and-file lawmakers about the dangers of not raising the debt limit.
“I don’t think lobbying organizations have taken responsibility in any informal or official way of getting in this debate,” Fazio said. “It’s beyond the pay grade of people not actively engaged on the Hill.”
Financial analysts warn that Obama and GOP leaders are running out of time to reach a debt-limit deal and predict market turmoil over the next several weeks.
The Dow Jones Industrial Average dropped more than 180 points before rallying slightly Monday after Obama and House Speaker John Boehner (R-Ohio) failed to reach a deal with congressional leaders over the weekend.
Market experts said the downturn was due primarily to concern over a weak national jobs report Friday and fears that Italy could become embroiled in the European debt crisis.
But they warn it’s a foretaste of what’s to come if policymakers in Washington remain deadlocked over extending the nation’s borrowing authority.
“If there is no progress in the negotiations by next week, financial markets will steadily become more unsettled,” said Mark Zandi, chief economist for Moody’s Analytics.
“Two weeks from now, the angst in financial markets will be mounting, and three weeks from now markets will be selling off,” he said. “It may in fact take significant turmoil in financial markets to induce policymakers to act.”
An internal analysis conducted by JPMorgan in April predicted that a delay in raising the debt limit would likely negatively affect markets as investors scramble to insulate themselves from a major stock drop. At the time, Treasury Secretary Timothy Geithner said Congress had until July 8 to act.
Some business insiders say Geithner made a mistake by setting deadlines and then postponing them, lulling the business community and Republicans into a sense of complacency.