WASHINGTON — To Wall Street, the partial
Failure to raise the debt limit, triggering a first-ever federal default, would be a brick wall on the road to recovery.
"There's precedent for a government shutdown. There's no precedent for default,"
"We're the most important economy in the world. We're the reserve currency of the world," Blankfein said. "Payments have to go out to people. If money doesn't flow in, money doesn't flow out."
The fiscal standoff between Democrats and
Investors generally don't think the government shutdown, at least at this point, will be a big hit to the economy. And global financial markets seem to have largely shrugged it off so far.
But the prospect of the U.S. government defaulting on its debts raises far more serious risks, said Tom Lee, chief U.S. equity strategist at
"There would be quite a lot of panic," he said.
Douglas Cote, chief market strategist for
Obama said that the threat of default made this not just another partisan Washington fight, and that Wall Street executives were right to be worried.
"I think they should be concerned," Obama told
With no compromise in sight, Blankfein, JPMorgan Chief Executive
Their trip came amid a fresh sign that the economic recovery was still struggling to gain traction.
Payroll processing firm
September's job growth was an improvement over the previous month, but only because the company revised its August figure significantly down to 159,000 from the initially reported 176,000.
"The job market appears to have softened in recent months," said Mark Zandi, chief economist at
Normally, the ADP numbers are just a prelude to the government's all-important monthly read on job creation and the
The shutdown probably won't have a significant effect on the economy unless it extends into next week, when it could start to unnerve investors, Zandi said.
At that point, the standoff would start getting dangerously close to Oct. 17. That's the date that Treasury Secretary
A government default would cause severe economic harm and push the nation back into recession, Zandi said.
"If they can't get it together by Oct. 17 and we hit the debt limit, then policymakers will have opened an economic Pandora's box," he said. "It would be just a mess and it would be very difficult to staunch the unraveling economy at that point."
Chris Krueger, a senior policy analyst at financial services firm Guggenheim Partners in Washington, said Wednesday that there was a 40% chance
Blankfein and Moynihan emphasized that they were not taking sides in the partisan fight that triggered the shutdown.
The group of executives, all members of the Financial Services Forum trade association, also met Wednesday with the No. 3 House Republican, Rep.
But Blankfein backed Obama's position that Republicans should not be withholding an increase in the debt limit as part of negotiations over spending and the new healthcare law.
"You can litigate these policy issues, you can relitigate these policy issues in a political forum, but you shouldn't use the threat of causing the U.S. to fail on its obligations to repay the debt as a cudgel," Blankfein said.
Moynihan said failing to raise the debt limit would be more damaging than the government shutdown, noting the financial market turmoil and economic hit that accompanied the last major fight over the issue, in 2011.
"There's no debate that the seriousness of the U.S. not paying its debts, whether it's Social Security checks, small business loans … all the way up to the Treasury notes and bills, is the most serious thing we have," Moynihan said after the meeting.