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John Arensmeyer

John Arensmeyer

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The Debt Ceiling: A Big Issue for Small Business

Posted: 05/20/11 11:54 AM ET

This week marks national Small Business Week--a time to honor our country's hard working entrepreneurs whose success is essential to strengthening our slowly recovering economy and creating jobs. Politicians are out en masse praising entrepreneurs' crucial economic role, and rightly so. But this week in particular, policymakers should back up those kind words with action on an issue that has major implications for small businesses and our economic recovery: the debt ceiling.

The debt limit, which is essentially the nation's credit card, maxed out this week at about $14.3 trillion. The Treasury has put emergency plans in place that will allow the government to continue borrowing and therefore not default on its debt until early August. Congress has until then to vote on whether to raise it.

This is a complex issue that economists have been pontificating about and politicians have been debating for months, and although just about everyone agrees that failing to raise the limit would be catastrophic -- credit ratings would plummet, interest rates would spike, Wall Street would explode and in the process small businesses would be financially devastated -- in this highly polarized political climate there's a fight brewing. Some lawmakers are using the debate as political leverage to make partisan demands that have nothing to do with the nation's economy in exchange for their vote to raise the limit.

For example, lawmakers might try to stop the Environmental Protection Agency from enforcing climate change standards through an amendment to the debt limit legislation. Most of the time this kind of political bartering is par for the course. But in this situation it's akin to holding the economy hostage to their political ambitions: the closer the nation gets to that August deadline, the more economic uncertainty is created, and in this instance that uncertainty has real consequences for small business owners. Small business owners like Mike Brey, owner of Hobby Works in Laurel, MD.

"Just the possibility of a default, for my business, would make it tougher to purchase stuff and to sell stuff outside of the country," said Mike, who does a lot of business with toy manufacturers in China. The closer we come to that August deadline, the more and more confidence is lost. "Small businesses don't expand because they have money now, they expand because they think they'll have more money coming in down the road. We're just now coming out of two years of unbelievable uncertainty, and we're finally starting to pull out of that. It won't take much to kick that confidence out from underneath us." The experts agree. Michael E. Zames, chair of the Treasury Borrowing Advisory Committee said, "Any delay in making an interest or principal payment by Treasury even for a very short period of time would put the U.S. Treasury and overall financial markets in uncharted territory, and could trigger another catastrophic financial crisis."

For much of the debate on this issue the consequences have focused on big businesses -- Wall Street in particular. But as we saw with the mortgage crisis several years ago, what's bad for Wall Street is bad for Main Street. With each passing day that we don't vote to raise the limit, economic uncertainty grows, creating a fiscally unstable environment where small businesses will find it even more difficult to get loans to expand their business -- something our economy needs more than ever right now -- and interest rates will begin to grow, making it more and more difficult for small businesses to pay off any debt they incur.

"This is one time where small businesses and big businesses are on the same page. It's why people are so scared," Mike Brey said. "We don't even have to default on the debt, people just have to think it's a possibility. I think even having the conversation is somewhat irresponsible."

Which brings up a good point: responsibility. Those in favor of not raising the limit argue we need to be more responsible with our debt. We couldn't agree more. But stretching out the debate simply to score some political points is beyond irresponsible. It's dangerous.

As lawmakers praise small business this week for their entrepreneurial spirit that drives the American economy, we hope they remember those same small business owners as they make decisions that will affect Main Street's bottom line. Have your debate, but do it quickly. The health of America's small businesses and the economy as a whole depend on it.

John Arensmeyer is the founder and CEO of Small Business Majority

 

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