Excerpt
WITH ONLY a couple of days left before a Sept. 30 deadline, it is anyone’s guess whether Congress will keep the federal government funded and open for business — for another month and a half. That is to say, no one knows whether government will be open on the day, sometime in the second half of October, when a bigger potential crisis rolls around. That’s when the Treasury Department runs out of cash and defaults on U.S. obligations — unless Congress raises the $16.7 trillion debt limit. A government shutdown would be a stupid, self-inflicted wound; default could be a debacle.
The proximate cause of this predicament is the mischievousness of ultra-conservative Republicans. Sen. Ted Cruz (Tex.) and a band of like-minded back-benchers in the Senate and House have launched a spurious and self-interested crusade to “defund” Obamacare, linked to the must-pass spending bill. Their reckless, doomed campaign has thwarted plans by more mainstream Republicans to pass a continuing resolution and avoid blame for a shutdown — so as to stage what they think, probably correctly, is a more winnable battle with President Obama over the debt ceiling.
Mr. Obama and his fellow Democrats have been content to sit back and let the Republicans self-destruct rather than negotiate. Under the circumstances, they have little incentive to do anything else.
The deeper cause of this dysfunction is a profound division between the two parties over the direction of the country — a red-blue gulf that spans everything from health care to taxes to immigration to spending. Only the federal helium reserve seems to enjoy bipartisan support these days. Ideological purists on both sides increasingly dominate intraparty politics, squeezing out moderates and magnifying the interparty gap.
Meanwhile, the economy struggles, burdened by misgovernment in Washington and the uncertainty that it inflicts on investors and workers alike. Americans need a feasible alternative to the partisan deadlock in Washington. At this point the best that might be hoped for could be an extended timeout, to give the economy a respite while politicians regroup and, one hopes, calm down.
"Danger to economy worries experts weighing potential government shutdown, default" by Zachary A. Goldfarb, Washington Post 9/29/2013
Excerpt
A prolonged government shutdown — followed by a potential default on the federal debt — would have economic ripple effects far beyond Washington, upending financial markets, sending the unemployment rate higher and slowing already tepid growth, according to a wide range of economists.
A shutdown of a few days might do little damage, but economists, lawmakers and analysts are increasingly bracing for a shutdown that could last a week or more, given the distance between Republicans and Democrats. Such an outcome would suck money out of the economy and spread anxiety among consumers and businesses in a way that is likely to hold back economic activity.
And a default on the federal debt, which may occur within 30 days without congressional action, would be much worse, economists say. Failing to raise the debt ceiling would require the government, a major driver of growth, to cut spending by about a third, potentially forcing delays in Social Security checks, military pay and payments to doctors.
There are other risks, too. On Oct. 17, the Treasury is scheduled to ask investors for $120 billion in loans. But if investors grow nervous about whether the United States will be able to pay them back, they are likely to demand higher interest rates, which would cause rates to spike throughout the financial system, leading to more expensive mortgages, auto loans and credit card bills.
Doubt could grow about the safety of parking money in U.S. bonds, the linchpin of the global financial system.
“It’s corrosive on the economy,” said Mark Zandi, chief economist of Moody’s Analytics. A lengthy shutdown followed by a default would be “the nightmare of the recession all over again.”
Even if lawmakers find a way out of a shutdown or a default, this fall’s brinkmanship — the fourth such crisis in two years — is likely to have negative effects on the economy. With so much uncertainty in Washington, economists say that businesses, flush with cash, have been reluctant to invest and hire.
“The simple story is it creates a tremendous amount of uncertainty,” said Ethan Harris, a top economist with Bank of America. “One of the unfortunate side effects of the brinksmanship is a message to business leaders to delay long-term commitments and wait to see whether something really bad happens.”
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