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Sorting out the 'what ifs' of the debt ceiling stalemate

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Detroit Lakes Online
Sorting out the 'what ifs' of the debt ceiling stalemate
Detroit Lakes Minnesota 511 Washington Avenue 56501

The jury's still out on what kind of impact the Red River Valley can expect if Congress is unable to raise the federal debt ceiling by Tuesday, the deadline to increase the government's borrowing limit or only be able to pay about 60 percent of its bills.

And there are still several scenarios for what could happen if lawmakers don't soon agree on a plan to deal with the nation's mounting debt and deficits. Several top credit rating agencies have warned failure to do so could prompt a downgrade in the United States' top rating, which could ripple throughout the global economy and spike interest rates.

But that uncertainty is already causing heartburn for the Grand Forks business community as everyone wonders what will happen in the coming weeks.

"Business thrives in an environment of stability," said Barry Wilfahrt, president and CEO of the Chamber of Grand Forks and East Grand Forks. "Anything that upsets that stability, whether it's local, state or federal, has an adverse effect on business."

That uncertainty could prompt local businesses to delay plays to hire new workers or expand in the region, he said; or maybe not, depending on what happens in Congress and how the markets and credit rating agencies react to the federal showdown.

"I think it's just more of a sense of what could happen rather than what's already happened," he said of concerns in the region and across the country as the nation's business leaders, residents and politicians speculate on what could happen.

'Uncertainty creates risk'

Wilfahrt said the average business "planning horizon" goes out anywhere from one to five years, which is why it's important for government actions to create "an environment of stability" as much as possible.

"Uncertainty creates risk, and businesses are obviously risk adverse," he said. "Anytime the government does anything to create uncertainty, it's creating risk for businesses and then businesses tend to not do anything."

That could stall plans to hire new employees or expand in the region, Wilfahrt said, as businesses wait for an indication of what the federal decisions will mean for the local economy.

"They might be thinking about hiring that one person, or they might say, 'We may delay that for a few weeks or a month and see what happens,'" he said. "I think you saw that same thing happen over in Minnesota when they had the shutdown."

John Colter, administrative executive of the Grand Forks Board of Realtors, said the local housing market has remained "steady, steady, steady," despite uncertainty over the government's fiscal future.

"It hasn't changed, so I don't think people are considering that around here," he said. "I'm sure that's on peoples' minds -- how can it not be? -- but I haven't heard of any concerns."

And interest rates are still "very favorable" right now, Colter said.

"I don't see how they're ever going to be able to borrow money at a cheaper rate than they can now," he said.

Waiting on the 'what ifs'

Several of the nation's top banking and financial CEOs wrote a letter today to President Barack Obama and members of Congress urging lawmakers to reach an agreement this week on the debt ceiling and enact "meaningful and concrete steps" to put America "on a sound fiscal footing."

The heads of Bank of America, Goldman Sachs, Morgan Stanley and Wells Fargo, among several others, signed onto the letter warning that the economic recovery remains "very fragile" and that a credit rating downgrade could raise interest rates, lower the value of the dollar and "roil" stock and bond markets.

"The consequences of inaction -- for our economy, the already struggling job market, the financial circumstances of American businesses and families, and for America's global economic leadership -- would be very grave," they wrote.

North Dakota has topped national rankings in recent years when it comes to the strength of its economy, even during the recession. The state had the lowest unemployment rate in the country last month -- a seasonally adjusted rate of 3.2 percent.

But the region "was not unaffected" by the national recession, Wilfahrt said, and likely would take a similar hit if the fiscal crisis boils over into a national, or even international, market rumbling over falling U.S. credit ratings, rising interest rates or slumping economic recovery.

"It really hasn't affected us yet," he said. "You just play out all those 'what ifs' for now. If it gets solved, it won't have that effect. But if it doesn't get solved, some of those 'what ifs' could happen."

Johnson reports on local politics. Reach him at (701) 780-1105; (800) 477-6572, ext. 105; or send email to rjohnson@gfherald.com. Follow him on Twitter: @JohnsonReports.

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