This article first appeared in the St. Louis Beacon: The fight over raising the federal debt ceiling is occurring thousands of miles away in Washington, D.C. But Missouri state Treasurer Clint Zweifel says an inability to resolve the issue could have a far-reaching impact on the Show Me State.
The Democratic statewide officeholder told the Beacon Thursday that failure to raise the debt ceiling could make it harder for businesses to borrow money, spark panic in the financial markets and hinder the ability to administer programs using federal dollars.
Those events, he said, could throw the state’s economy for a loop.
“It’s tough, because we obviously have never been in that scenario before,” Zweifel said in a telephone interview. “I hope we never find out. But ultimately the scenarios of an economic uncertainty that is very deep and that could cause everything from rising interest rates to a falling dollar are real concerns.
“The results of what we saw in 2008 and 2009 were pretty clear: We can’t have the financial markets falling apart and still provide the jobs that we need,” he added.
Zweifel has stepped up his warnings about the potential consequences in recent days, including penning an op-ed in the Kansas City Star.
Along with other state and local governments, Zweifel said that Missouri has invested in U.S. treasury bonds. Failing to raise the debt ceiling and defaulting on outstanding obligations, he said, could “totally turn what has been a sound investment strategy on its head.”
“As a state, we’re constantly managing cash flow on a day-to-day basis to ensure we have cash to make payments,” Zweifel said. “We use something called repurchasing agreements to do that. While those might not be a direct investment in treasuries, treasuries are used to back those instruments as collateral. If we don’t have access to that market and it isn’t healthy and it isn’t working, it’s going to have a lot of repercussions.”
After noting that Missouri receives billions in federal dollars to administer various programs, Zweifel said defaulting could result in cash flow and liquidity problems. That, he said, would make it more difficult to run programs “for veterans, for women and children, for schoolchildren.”
"When congressmen say things like ‘we should prioritize payments,’ (let's be) clear what prioritizing payments means: That means delayed payments," Zweifel said. "So for programs like Social Security, programs for veterans – whether it be tuition payments, pension payments, disability payments -- or other programs for our schoolchildren or women, those all could be delayed."
A default, he said, “could put the United States really on a pathway toward an economic crisis deeper than most of these folks understand.”
“We play a huge role and really are the centerpiece of the global financial markets,” Zweifel said. “The impact of a default will be felt everywhere globally, but also right here. A small business’ ability to borrow or somebody who’s borrowing for student loans on the private side would have a tougher time. Home loan rates could go up. We could have a credit freeze, which becomes very difficult then for anyone to make decisions financially.”
Zweifel said he recently was at a conference with other state treasurers from around the country. While many have differing political views, he noted, a broad consensus “that the federal government’s actions or lack thereof could create a level of insecurity in terms of being able to serve their constituents on a day-to-day basis.
“It’s normal for there to be ideological divisions and differences,” he said. “But never, ever have we ever put the full faith and credit of the United States at risk because of an ideological debate. It might have been part and parcel of a debate in the past. But it’s never been front and center like it is now and really at risk.”
Wants long-term solution
Today, in Washington, House Republican leaders offered to pass a six-week increase in the nation’s debt ceiling. USA Today reported that President Barack Obama would consider taking that deal to avoid a default.
When asked about that possibility, Zweifel replied: “Listen, if the choice is between an immediate default and extending the debt ceiling for six weeks, I’ll take extending the debt ceiling for six weeks.”
But, he said, “Obviously, the best situation is to get this political battle behind us and move onto the real policy considerations at hand: That’s putting the United States on a stronger fiscal footing, finding ways to reduce long-term spending while spending investments in infrastructure in the short-term.”
He went on to say the 2011 fight over raising the debt ceiling – which didn’t result in a default – caused drops in consumer confidence, the stock market and retirement assets.
“If you ask economists across the board – both conservative and more to the left – they both agree that we have to reduce long-term spending while still making short-term investments in things that matter like infrastructure and education,” Zweifel said. “The politics might be hard. But the math isn’t that hard. But we have to have government function to do that. And that’s really a test of leadership at this point.”
