Minnesota’s executives and business groups worry about shrinking revenue and consumer confidence if the U.S. defaults.
WASHINGTON – As the U.S. Senate, House and White House battle over the nation’s debt limit and a partial government shutdown, many of Minnesota’s major businesses have strongly endorsed bringing federal employees back to work and raising the debt ceiling so the country can continue paying its bills.
The Business Roundtable, a national organization of CEOs that includes the top executives at Minnesota stalwarts UnitedHealth Group, Target, Medtronic, General Mills, Ameriprise Financial and Honeywell International, issued the sternest warning about the dangers of default.
“Failure to fund the basic business of government and adjust the debt limit in a fiscally responsible manner would risk both the immediate and long-term health of the U.S. economy and could permanently increase borrowing costs,” the roundtable wrote in a letter to congressional leaders. “Even a brief government shutdown would have serious economic consequences and default, however temporary, would be calamitous.”
Whether through their trade associations, interest groups or individual statements, Minnesota’s business community has spoken firmly against a Capitol Hill stalemate that may already have affected fourth-quarter earnings, sales, hiring and capital investments in a U.S. economy still recovering from the Great Recession.
At Prime Therapeutics in Eagan, CEO Eric Elliott said the company’s payments from Medicare and Medicaid will be at risk in the event that the government stops paying its bills. Prime has more than 3,000 employees (about 1,500 in Minnesota) and manages $15 billion in prescription drug spending for 23 million people.
“We have to be cautious with our capital investments and certain we understand the broader, longer-term, macro impact [of default],” Elliott said.
But government contractors are not the only ones pleading for action.
Carl Casale, CEO of Inver Grove Heights-based CHS Inc., the nation’s largest agricultural cooperative, said a default would break the confidence of governments, investors and individuals in the U.S. government.
“We all know the reality of what happens when a debtor defaults,” Casale said. “The lender takes legal action to accelerate collection of all amounts owed. This is true for individuals, businesses and governments.”
Wells Fargo & Co. confirmed Friday that to prepare for the possibility of a U.S. default, the bank extended the maturity of some borrowing in repurchase agreement financing through the end of the month.
“Most market participants may have done the same as the U.S. closed in on its debt ceiling,” Wells Fargo CFO Tim Sloan told Bloomberg.
U.S. Treasury bonds are the lifeblood of banks, which invest in them for safety and use them as collateral in the huge market for “repos” where banks make overnight loans to one another.
“They are the broadest, deepest liquid market for a safe investment, interchangeable with cash,” said Paul Merski, chief economist for the Independent Community Bankers of America. “It’s kind of the plumbing of the whole financial system.”
Doug Hile, president and CEO of Chaska-based KleinBank, said an actual default on U.S. Treasury bonds would cause a disastrous economic dislocation that would affect the bank in myriad ways. But he doesn’t think it will happen, he said, and doesn’t know anyone who truly thinks it will.
“That’s why people are appalled,” Hile said. “They feel like they’re just being played here.”
The theatrics in Washington alone, he said, is creating uncertainty among business owners, he said. Loans backed by the Small Business Administration are a big part of its business, he said. With the shutdown, all he can do is submit the new paperwork and cross his fingers.
Hile said his bank team is discussing backup plans but doesn’t want to put anything on paper because the default situation is “pure speculation.”
A letter to the Senate and House signed by 326 organizations including local Chambers of Commerce in Minneapolis, St. Cloud, Dakota County, Fairmont, Rochester, Monticello and Brainerd Lakes called on Congress to raise the debt ceiling “in a timely manner” and “remove any threat to the full faith and credit of the United States government.”
Some executives think the consequences of not doing that are so significant that a deal will come together in time.
“The U.S. dollar is the world’s reserve currency, and the interest rates on the U.S. dollar set benchmark interest rates for a host of other securities,” said CEO Greg Page of Minnetonka-based Cargill. “The probable impacts of a default are not easy to determine, but we expect they will reach beyond the U.S. economy. For that reason, we believe the debt ceiling will be resolved.”
At Dunn Bros. Franchising, a small business that owns and franchises coffee shops, co-CEO Chris Eilers says consumer confidence remains shaky enough to be vulnerable to the mere hint of trouble.
“Any significant change in consumer confidence at this point in our recovery could throw our economy into another recessionary tailspin,” Eilers said. “Uncertainty and fear are very bad for the hospitality businesses.”
Default would be so bad for Minnesota businesses that the state’s executives will continue to sound alarms.
Wells Fargo & Co. CEO John Stumpf, whose bank employs more than 20,000 in Minnesota, called on lawmakers to “break the logjam.”
Staff writers Jennifer Bjorhus, Jackie Crosby, Mike Hughlett and Neal St. Anthony contributed to this report.
Jim Spencer • 202-383-6123