By now, most of you should have heard that the government is out of business and will continue to be for the foreseeable future.
Will the shutdown result in mass chaos? Almost certainly not, unlike what some people may believe.
“Essential staff,” such as air traffic controllers, the U.S. Postal Service, military personnel, and even congressmen, will continue to be paid. Will the shutdown affect our day-to-day lives? Most likely not too significantly, at least not in the short term. Who does the government shutdown affect?
The lives of “non-essential” government employees, working in administrations such as the National Institute of Health, NASA, or the Fair Housing Assistance Program, will undoubtedly be impacted negatively. Certainly these 800,000 plus “non-essential” employees are not pleased with being indefinitely furloughed from work activity, with their back pay in doubt.
Veterans will have issues receiving benefits. Students like us may face some issues with Pell Grant and Federal Direct student loan payments, as these will take longer to process due to the furloughing of 95 percent of the Department of Education’s full-time workforce.
Perhaps most famously, American national parks have been blocked off, much to the dismay of the approximately 715,000 people per day who visit parks nationwide in October, according to U.S. Park Service spokesman Mike Litterst. As crazy as the current shutdown might seem, it should be noted that this is far from the first time the government has shut down.
In fact, the last shutdown occurred in 1995-96, as a result of a disagreement over aspects of budget cuts between President Bill Clinton and House Speaker Newt Gingrich. It should be noted that the 1995-96 shutdown, while damaging, was far from insurmountable.
In fact, the U.S. recovered from this shutdown during the final years of Clinton’s administration, running budget surpluses, steady economic growth and an improving quality of life for the average American citizen. We can safely say that the worst potential for catastrophe has not occurred yet.
The major potential for catastrophe will occur Oct. 18, when the government debt ceiling will have to rise in order to prevent a potential government default. The debt ceiling is the cap on the amount of debt that the U.S. can accumulate. Lawmakers need to raise this in order to borrow more in the short term – or else risk being unable to pay off all of its obligations and face a default.
To the uneducated reader, the debt ceiling showdown may not sound as tangible or bad as a government shutdown. But in reality, the debt issue could potentially equate to an economic shutdown.
“The stock market would drop,” John Berdell, an economics professor, said. “The assets of U.S. debt holders – (many of whom are American citizens) – would be severely impacted. This wealth contraction would induce recession. A debt default would even cause future deficits to rise, since tax revenues would fall so much (due to the wealth contraction).”
Unlike the largely self- contained nature of the government shutdown, an American default would not only create recession within our own nation; it could lead to economic crises around the world.
“In times of crises, people around the world tend to flock to U.S. dollars, U.S. assets,” Berdell said. “U.S. treasury bonds are traditionally the most secure asset on the world market.”
It should be noted that the interest rates of U.S. treasury bonds are often referred to as the “risk free” interest rate. “What would we do after default? Where would we find a risk free interest rate?” Berdell asked. “It would no longer exist. If we run away from (trusting) the U.S. dollar, where would the world currency market run?”
A default by the American government is unprecedented; the results have always been seen as too catastrophic to let happen. Similar defaults and debt restructuring in smaller nations such as Greece or Argentina have been crippling to their own country’s ability to function in the past.
With a default by America, the world’s largest economy, the potential to spread this pain around the globe is large. “We already look on track to reduce our deficit spending in the medium run, so I ask why (worry about the debt ceiling) now?” Berdell said. “This politicking over the debt ceiling doesn’t seem to help anything.”
While Congress has already screwed up in its decision making – or lack thereof – during the shutdown crisis, we must be aware of the far reaching effects of future events. American politicians claim to be working on resolving this issue. Although House Speaker John Boehner supported the efforts to shut down the government in order to block Obamacare from passing, he has claimed that he would consider working with Democrat House members in order to prevent a default.
However, given Congress’s recent track record, it is reasonable to be skeptical of these supposed efforts. It could be said that we, the American electorate, are somewhat to blame for our current predicaments. Although we continue to blame Congress for our current state of affairs, it should be noted that a study by Bloomberg shows that 90 percent of congressmen who sought re-election in 2012 successfully did so.
As voters, we are to blame for preserving the status quo in politics. If our nation’s politicians fail to resolve the debt-ceiling crisis, we must hold them accountable. When the next midterm elections occur in 2014, it is our job to turn our anger and frustration into productivity and vote in some new faces come election time.
Until then, all we can hope is that the current Congress can get its act together. When the next test – the debt ceiling – comes up Oct. 18, we must hope that our nation’s leaders can make some better decisions the second time around. If they don’t, catastrophe will occur, and we must hold our leaders responsible.