What Not Raising the Debt Ceiling Would Mean to Business

And National Association of Wholesaler-Distributors urges House to support Speaker John Boehner's bill.

Update: A deal to raise the debt ceiling has been agreed to, passed by the House and is headed to the Senate for approval.

The deadline to raise the U.S. debt ceiling is Tuesday, and the debate in Congress continues to rage. President Barack Obama has already stated he would veto the current bill limping through the House, but it won't matter if that bill doesn't even make it to his desk.

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If the debt limit is not increased in time, the effects could be devastating, according to Dan Meckstroth, chief economist for the Manufacturers Alliance/MAPI. "If the debt limit is not raised, it would be an unmitigated disaster," Meckstroth tells MDM.

Businesses that rely on treasury securities in day-to-day transactions would be unable to determine the value of those securities, severely limiting their usability, Meckstroth says. And banks would likely have to restrict their lending because they couldn't guarantee a liquid position.

If the limit isn't raised, "the federal government … will be short over $100 billion a month, which is twice the growth rate of the U.S. economy," Meckstroth says. "With that we will go back into a recession very quickly." (Meckstroth will be featured in the next MDM/MAPI Economic Update podcast, available in August at www.mdm.com/economic-update)

The enormity of that is not being ignored outside of Congress. The National Association of Wholesaler-Distributors sent a letter to the House of Representatives on behalf of its 40,000 members, urging passage of the latest bill presented by House Speaker John Boehner. Letter authors Dirk Van Dongen, president of NAW, and Jade West, NAW senior vice president-government relations, write: "The House must act now. Passage of this legislation is critical. Holding out for the unattainable perfect will help ensure default which will constitute a self-inflicted wound of enormous and long-term consequence."

Read the letter from NAW to the House.

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