Lawmakers shouldn’t risk a default on U.S. debt because the impact would be devastating and the full extent of the damage isn’t knowable in advance, said the heads of JPMorgan Chase & Co. and Deutsche Bank AG.
“The United States cannot default and, in my opinion, will not default,” JPMorgan Chief Executive Officer Jamie Dimon said during a panel discussion at a financial industry conference in Washington. “It would ripple through the global economy in a way you couldn’t possibly understand.”
The economy has been gaining strength and a default now could reverse that progress, Mr. Dimon said. “Please, let’s not shoot ourselves in the foot,” he said. Deutsche Bank co-CEO Anshu Jain called the prospect of even a small default “utterly catastrophic.”
The CEOs spoke while U.S. lawmakers struggled without success to reach an agreement that would avert default and end the 12-day government shutdown. The Senate rejected a Democratic plan to push the debt-limit fight into 2015. The U.S. might not be able to pay all its bills as early as Oct. 17.
“There isn’t life beyond default,” Jain said during the panel discussion with Dimon. “This would be a very rapidly spreading, fatal disease.” The potential consequences are so unfathomable that Jain said he couldn’t offer the audience any meaningful recommendations on how to react.
“Europe was paralyzed at the possibility of an Italian default, which was a 2 trillion Euro economy,” Mr. Jain said, referring to the continent’s debt crisis. A U.S. default would be far worse with incurable legal problems, he said. “You’re now talking about the underpinnings of finance,” Jain said.
JPMorgan is the largest U.S. bank by assets and based in New York. Deutsche Bank, based in Frankfurt, is the biggest in Germany.
“The consequences of it would be absolutely disastrous, considering the role of the U.S. dollar,” said Baudouin Prot, chairman of Paris-based BNP Paribas SA, at today’s event. “I don’t believe for one second that this scenario will occur.”
Even as default looms, Jain said the dollar’s status as the world’s reserve currency is here to stay.
“There’s no alternative,” and there won’t be one for at least decade, he said. Mr. Jain said he would have liked to have seen the euro occupy more of that role. “The European crisis over the last two or three years has set that back,” he said.