Even as lawmakers appeared locked in a stalemate last month over raising the debt ceiling, Kogod School of Business experts familiar with how recent history has repeatedly unfolded remained optimistic.
Weeks before President Joe Biden and House Republican leaders ultimately reached a deal, Kogod Department of Finance and Real Estate Professor Jeff Harris was clear on his expectation:
“I have a feeling there won’t be a default,” Harris, the Gary D. Cohn Goldman Sachs Chair in Finance, predicted.
And yet, Harris simultaneously feared complacency in the wake of multiple government shutdowns in recent memory. There’s been three in the last decade alone when Congress has been unable to reach budget deals.
“People think we’ve done something like this before, and everything turned out okay,” Harris pointed out, fearing confusion over the more relatively frequent shutdowns and what would have been an unprecedented default.
“I think if there hadn’t been government shutdowns before, there might have been more anxiety,” Harris said. “That is a little scary.”
In fact, US Treasury Secretary Janet Yellen repeatedly warned of potentially catastrophic economic consequences to businesses, consumer confidence, and the global economy more broadly if the US had defaulted on its debt for the first time.
For that reason, even as Biden touted the bipartisan nature of the debt ceiling agreement, prominent credit rating agency Fitch announced it would keep the nation’s AAA credit rating on negative watch, citing “repeated political standoffs” over the borrowing limit and a “steady deterioration in governance” over the last 15 years.
It’s a step perhaps less punitive than when Standard and Poor’s outright downgraded the US credit rating amid another borrowing limit showdown in 2011. But the brinkmanship takes a toll, notes Harris, who has an extensive background in market microstructure following a run as chief economist and a division director at the US Securities and Exchange Commission.
“It has ramifications down the road for whether people want to put money in our government,” Harris said of the past decade’s eleventh-hour deals.