If the country avoids breaching the debt limit in the next months, you may not have Wall Street volatility to thank. Or even respected conservative economists who are fighting to convince House Republicans to expand the federal government’s borrowing capacity. Instead, look toward Main Street.
A late April survey of small business owners by Goldman Sachs found that 90 percent think it’s important that the federal government doesn’t default on its debt, and two-thirds say their own businesses would be hurt if it did.
A separate CNBC survey of small business owners survey taken in January found that 86 percent were concerned about the US government hitting its debt ceiling, with 61 percent reporting that they were “very concerned.”
Those Main Street businesses have enormous influence with their members of Congress. It’s especially true for old-style economic conservatives who like low taxes and small government. But don’t underestimate the influence of these business owners with many Democrats and even some populist Republicans and new wave Trumpists.
Most Republican members of Congress get campaign contributions from local business owners and are likely to know them socially. And when Main Street asks how the hell Congress could let America default on its debt, those legislators will listen.
After all, those businesses will be some of the biggest losers if the US defaults, interest rates rise even faster than they have, and the economy collapses. The Goldman survey found that three-quarters of Main Street companies already worry about their ability to access capital. A year ago, only a quarter were concerned.
Imagine what an increase in interest rates will do to car sales. Or what it will mean for home sales, which are already plummeting in many markets under the weight of rising interest rates. Or how it will affect local bankers reeling from the recent failures of high-profile community banks. They will be among the first to stumble into the quagmire of unprecedented economic uncertainty.
Looking for an exit ramp
I suspect many traditional House Republican conservatives, especially those newly elected in swing districts, are eagerly seeking a way out of the looming debt crisis.
They have yet to pluck up the courage to challenge their party leadership. Similarly, large national business lobby groups such as the US Chamber of Commerce and the Business Roundtable, remain reluctant to publicly demand swift action at the debt limit. But the members of the local Chamber may be different.
Sure, many on Main Street will applaud Republican calls for less government spending, lower taxes and less regulation. Certainly some believe the biggest threat to their business is federal debt rather than defaulting on the debt limit. Many are instinctively drawn to House Republicans. Law of Limit, Savings, and Growth that promised to cut spending by about $4.5 trillion over 10 years without ever saying how. And chances are, you want the government to cap spending and pay the bills you’ve already racked up.
In the Goldman survey, about 80 percent of small business owners thought it was important to enact spending cuts along with a debt limit increase. Even that is complicated, however. For example, Goldman’s February Survey of Small Business Owners found strong support for modernizing the Small Business Administration. But that could cost money, and the SBA could get caught up in the overall spending-cutting plan that House Republicans passed in April.
Make a choice
The bottom line: Will Main Street be willing to pay the price of default to slightly improve the odds of shrinking government the way they prefer? It seems unlikely.
Business owners will have to choose. It will be impossible for Congress and the White House to agree on specific spending cuts in the coming weeks. They may agree to a framework for future deficit reduction talks. That won’t be enough for hardline Republicans, but what about lawmakers who listen to their local businesses? With the cover of your business communities, would you be willing to work with the Democrats to find a way out of the debt limit mess?
As the nation approaches a default, interest rates could rise in anticipation of a default as they did the last time we did this, in 2011. And that may be when moderate Republicans start listening to local businessmen whose interests are more commercial than ideological.
It’s too early to tell if enough of those local businessmen will lobby Congress for a debt limit deal. But if you want to know how this will all end, look at Main Street, not Wall Street.