By Peter Schroeder - 10/09/13 10:29 PM EDT
The financial sector plans to deliver a blunt message to Congress Thursday: Quit messing around and raise the $16.7 trillion debt limit.
The heads of some of the industry's most powerful groups are prepared to offer an unflinching message to the Senate Banking Committee, warning that even the threat of a default could upend markets, drive up costs and throw the world's confidence in the United States into doubt.
According to prepared testimonies made available by the committee, the officials will rattle off a host of ways a failure to raise the debt ceiling could wreak havoc on the economy.
"The damage of a default — or even of a second near-miss in a little over two years' time — would be visited upon every American. … Make no mistake, that is an event our nation must avoid," said Paul Schott Stevens, president and CEO of the Investment Company Institute, according to prepared testimony.
Frank Keating, the head of the American Bankers Association and the former Republican governor of Oklahoma, will warn that this year's debt-limit fight is a bigger threat than 2011's, and that the U.S. will not recover quickly if the brinksmanship goes too far.
"We are much closer to disaster this year than we were just over two years ago when the debt-ceiling standoff caused economic uncertainty to spike, consumer confidence to plummet and stock prices to spiral downward," his testimony states. "If Congress fails to act and we hit the debt ceiling we will set off a chain of events that will cover our entire economy and impact all Americans. These impacts would not be easily reversible."
"An actual default by the federal government along with a protracted government shutdown could have serious implications on the U.S. economy and may result in a recession even more severe than any since the Great Depression," he will warn.
Ken Bentsen, the president of the Securities Industry and Financial Markets Association, plans to tell Congress that the financial industry has prepared as best it can for the government potentially not paying all its bills. But even he will warn that it is impossible to prepare for something that has never happened in the entire history of the United States.
"No amount of planning can identify and mitigate all of the potential short and long term consequences of a default," his testimony states. "Unnecessarily triggering a historic default will result in dramatic, and possibly permanent damage to our economy and markets, in ways both anticipated and unanticipated."
The Treasury Department has told Congress that by Oct. 17, the government would only have $30 billion left in cash to pay its bills and could miss a payment on any given day. Treasury Secretary Jack Lew will also testify before Congress Thursday, appearing before the Senate Finance Committee to discuss the dangers of default.
The witnesses will not pick sides in the protracted battle over the nation's borrowing cap, in which Republicans are demanding concessions while the White House refuses to negotiate. And they also warn that once the immediate crisis is averted, Washington does need to take serious steps to rein in the country's long-term debt, which poses its own substantial risks to the economy.
But much of the testimony seems to aim at congressional Republicans who have argued that the U.S. would never default on its debt, given that the Treasury Department would take all available revenue and make sure interest payments were made before cutting all other checks.
Keating will contend that even the prospect of a default would be "massively disruptive to our economy."
"A default, or even the perceived threat of a default, could result in a harsh and long-lasting recession, which may be even more severe than the previous economic downturn," Thomas will add.
Sen. Tim Johnson (D-S.D.) chairman of the committee, called the witnesses to testify to underline the threats the economy faces during the debt-limit battle.
"Today, before it is too late, we will hear from our witnesses about the kind of impacts we should expect if the United States defaults," he will say in his opening statement. "It is time to stop playing this foolish game of chicken with our economic recovery."