U.S. Economic Outlook Dire if Government Shuts Down
Standard & Poor has warned of a dire outcome for the U.S. economy if the White House and lawmakers fail to reach a deal to keep the government operating and avert a default. Because of the urgency to address the flooding in Houston, the likelihood of a government shutdown is remote.
When Congress returns to Washington following the August recess, it needs to vote on raising the debt ceiling and approve federal spending. The debt ceiling is the legal limit on how much the government can borrow. To borrow more, there needs to be a vote on the debt ceiling. Republicans have made it a habit to threaten a “no” vote on raising the debt ceiling without achieving a number of significant cuts to discretionary spending.
If the debt ceiling doesn’t get raised, the government will be forced to shut down and default on its loans—which, of course, would have catastrophic economic ramifications. The U.S. Treasury has said the debt ceiling must be raised by September 29 to avoid a government shutdown.1
According to Standard & Poor’s, a default would be worse than the collapse of Lehman Brothers in 2008 and the U.S. would fall back into a recession, wiping out the economic progress and stock market gains seen since the Great Recession ended in 2009.
A government shutdown, while less devastating than a default, would still be detrimental to the U.S. economy.
Shutting down the government would erase 0.2% or around $6.5 billion from the gross domestic product each week in the fourth quarter, or for as long as it drags on.
Shutting down the government would also mean no government paychecks go out, lost business, lost consumer spending, and fewer taxes collected by Uncle Sam.
Because of the devastation of Hurricane Harvey and the urgent need for federal disaster relief, though, many think Washington will not shut down. But there is a wrinkle in the story.
At a rally in Phoenix in mid-August, Trump promised to build a wall along the Mexican border even “if we have to close down our government.”2
Ironically, Republican lawmakers have said they want to fund part of the down payment for the border wall with Mexico by siphoning nearly $1 billion from the Federal Emergency Management Agency’s disaster-relief account.3
With the streets of Houston flooded and tens of thousands of Texans in temporary shelters, the idea of taking $1 billion from federal disaster coffers (which currently hold just $2.3 billion) to fund a wall does not exactly look good.
It’s not off the table, though. According to a recent survey, over half of Republican voters said they would support shutting down the government to force Congress to fund a U.S-Mexico border wall.4
Learn-To-Trade.com, Toronto’s Leader in Stock Market Trading Courses
A U.S. government shutdown or default would be disastrous for the U.S. economy and result in a stock market crash. While the idea of a stock market crash will send many investors running for the sidelines, the licensed industry professionals at Learn-To-Trade.com know there are proven strategies investors can use to make a profit no matter what the markets are doing.
Learn-To-Trade.com is Canada’s oldest and leading provider of stock market trading courses. The trading experts at Learn-To-Trade.com teach investors of every skill level how to trade more confidently and profit consistently.
Learn-To-Trade.com also has a unique Lifetime Membership that allows you to re-attend any part of the program as often as you’d like.
To learn more about Learn-To-Trade.com’s stock market trading course, contact us at 416-510-5560 or by e-mail at firstname.lastname@example.org.
- “S&P warns of dire impact on U.S. economy from any shutdown, default,” Reuters web site, August 30, 2017; https://www.reuters.com/article/us-usa-economy-s-p-idUSKCN1BA2CT.
- “Trump’s Speech Phoenix,” The Washington Post web site, August 23, 2017; https://www.washingtonpost.com/video/politics/watch-trumps-full-speech-in-phoenix/2017/08/23/9eeb9d50-87d5-11e7-96a7-d178cf3524eb_video.html?utm_term=.530eba73b04d.
- “GOP eyeing nearly $1 billion cut to Harvey disaster funds to help finance Trump’s border wall,” CNBC web site, August 30, 2017; https://www.cnbc.com/2017/08/30/gop-eyeing-1-billion-disaster-funds-cut-to-help-wall.html.
Photo Credit: istock.com/Gearstd
Latest posts by George Karpouzis (see all)
- Stock Market Remains Choppy as Investors Mull Q3 Earnings and Partial U.S./China Trade Pact - October 18, 2019
- After Strong Start to 2019, Toronto Stock Exchange Is Facing Headwinds - October 10, 2019
- Investors Should Get Ready for a Volatile Ride in October - October 3, 2019