The business community is freaking out over the possibility of Republicans going back on their word and withholding an increase in the debt limit. Sixty-two trade associations signed an extraordinary letter to that effect today. Here’s an excerpt.

Raising the statutory debt limit is critical to ensuring global investors’ confidence in the credit worthiness of the United States. With economic growth slowly picking up we cannot afford to jeopardize that growth with the massive spike in borrowing costs that could result if we defaulted on our obligations. It is critically important that the United States stands fully behind its legal obligations […]

We trust that, under your leadership, the Congress will again take the necessary steps to preserve our nation’s financial standing in the world and help ensure that the American economy continues on its current path toward restored prosperity.

The trade groups that signed this include some of the heaviest hitters on K Street, including the Business Roundtable, the Financial Services Forum, the National Association of Manufacturers, the National Retail Federation, the Securities Industry and Financial Markets Association, the Telecommunications Industry Association and the US Chamber of Commerce. There’s a passing reference in there to making “tough calls” on US spending, but “our nation’s financial standing in the world” is clearly the main concern.

What you have the business community saying is that they don’t actually mind hostage-taking for Republican ends, just not on the debt limit. The consequences are too severe.

And this is particularly true of Wall Street. You see a lot of Wall Street’s top trade groups listed on the letter. Ben Bernanke made a similar statement against Republican stubbornness today, actually saying it could risk a “Lehman Brothers-style meltdown.” Wall Street would actually be the biggest loser in a default event, because their borrowing costs would rise.

Despite all this, John Boehner characterized Democratic concerns over the debt limit as “panic and hysteria.” But this is not coming from Democrats. It’s coming from the Republican Chair of the Federal Reserve and a series of trade groups that almost always ally with Republicans. Majority Whip Kevin McCarthy backed up Boehner, saying there are zero Republican votes for a clean increase in the debt limit.

Ultimately, I think Republicans want to push this debate to the absolute limit to extract maximum concessions. Mitch McConnell brought up entitlement reforms again today. The problem for them is that nobody knows where that limit is. Nobody knows exactly when the consequences of not raising the debt limit will be felt. It doesn’t have to end in a default event, just in something that spooks and crashes the markets. And so Republicans are playing a game of chicken with their eyes closed, not knowing how far away the oncoming car is.

David Dayen

David Dayen

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