Andrew from Vista Financial Posted October 10, 2013 Share Posted October 10, 2013 Update on the US Shutdown by BT Chief Economist Chris Caton The US government shutdown has entered its second week. This is not as dire as it sounds. Firstly, only the 36% of Federal spending classified as “discretionary” is affected; Social Security payments, for example, continue to be made. Secondly, while there hasn’t been a shutdown since the halcyon days of Bill Clinton in 1996, before that they were quite a common occurrence. The table below shows that there were 17 such shutdowns between 1976 and 1996. The median length was 3 days, with the longest being the 1995-96 event (21 days). Those that began on 30 September, as this one did, had a median length of 11 days. In each case, life as we know it eventually resumed. History and duration of US Governement shutdowns: [TABLE=class: cms_table, width: 100%, align: center] [TR] [TD]Dates [/TD] [TD]Number of Days [/TD] [/TR] [TR] [TD]September 30 - October 11, 1976 [/TD] [TD]10 [/TD] [/TR] [TR] [TD]September 30 - October 13, 1977 [/TD] [TD]12 [/TD] [/TR] [TR] [TD]October 31 - November 9, 1977 [/TD] [TD]8 [/TD] [/TR] [TR] [TD]November 30 - December 9, 1977 [/TD] [TD]8 [/TD] [/TR] [TR] [TD]September 30 - October 18, 1978 [/TD] [TD]18 [/TD] [/TR] [TR] [TD]September 30 - October 12, 1979 [/TD] [TD]11 [/TD] [/TR] [TR] [TD]November 20 - November 23, 1981 [/TD] [TD]2 [/TD] [/TR] [TR] [TD]September 30 - October 2, 1982 [/TD] [TD]1 [/TD] [/TR] [TR] [TD]December 17 - December 21, 1982 [/TD] [TD]3 [/TD] [/TR] [TR] [TD]November 10 - November 14, 1983 [/TD] [TD]3 [/TD] [/TR] [TR] [TD]September 30 - October 3, 1984 [/TD] [TD]2 [/TD] [/TR] [TR] [TD]October 3 - October 5, 1984 [/TD] [TD]1 [/TD] [/TR] [TR] [TD]October 16 - October 18, 1986 [/TD] [TD]1 [/TD] [/TR] [TR] [TD]December 18 - December 20, 1987 [/TD] [TD]1 [/TD] [/TR] [TR] [TD]October 5 - October 9, 1990 [/TD] [TD]3 [/TD] [/TR] [TR] [TD]November 13 - November 19, 1995 [/TD] [TD]5 [/TD] [/TR] [TR] [TD]December 5, 1995 - January 6, 1996 [/TD] [TD]21 [/TD] [/TR] [/TABLE] Source: RenMac The current shutdown came about because US Congress did not pass a “continuing resolution” to enable the Government to continue to spend when the new fiscal year began on 1 October, 2013. The main reason why Congress failed to do this is because the far right faction of the Republican Party (frequently referred to as the Tea Party) is seeking to stop the Affordable Care Act (aka Obamacare), which makes health insurance compulsory for most Americans, while ensuring that everyone can get coverage. The economic effects of the shutdown are not huge; it is estimated that every week that it lasts will shave about 0.1 percentage point of Q4 GDP growth. It now appears that the length of this shutdown will exceed the 11 day historical median. The reason is that the issue is about to be enjoined with another far more serious one; the raising of the US debt ceiling. This is something that needs to be done periodically so long as the Federal Budget is in deficit. Some will recall the share market chaos, and the downgrading of US Government debt by at least one ratings agency when the ceiling had to be raised in August 2011. Raising the debt ceiling should be a simple accounting exercise; instead it tends to become a game of fiscal chicken between the Republicans and the Democrats. Given the intransigence that caused the shutdown, many fear that the debt ceiling negotiations will stall and the Government will literally run out of money, sometime soon after 17 October. A subsequent debt default by the US government would have untold negative consequences in global financial markets. The US Treasury has suggested that it would lead to a crisis as bad as 2008, and that the effects would be felt for a generation. The fact that the outcome of a default would be so pernicious is, of course, the biggest single reason why things are unlikely to get that far. But someone has to blink. For as long as this remains an issue, markets will be volatile. But resolution should lead to a strong pickup as uncertainty is removed. Link to comment Share on other sites More sharing options...
Paul1Perth Posted October 10, 2013 Share Posted October 10, 2013 Raising the debt ceiling should be a simple accounting exercise All sounds so simple doesn't it. Doesn't it really mean though that the government has to give the go ahead for increasing Americas debt by $9billion a month, to be paid back someday. When it comes due for payment in another 6 months what will they do? Another "simple accounting exercise" and raise the fiscal ceiling again. We all know that it was a "simple accounting exercise" that led to the GFC and the world is still in recovery from that. Link to comment Share on other sites More sharing options...
Guest Posted October 10, 2013 Share Posted October 10, 2013 Paul1perth - exactly. I read it as the US is up the creek without a paddle. Gone are the days when it was the world leader of economies, i think the world need to stop pinning their economies on the dollar Link to comment Share on other sites More sharing options...
newjez Posted October 10, 2013 Share Posted October 10, 2013 All sounds so simple doesn't it. Doesn't it really mean though that the government has to give the go ahead for increasing Americas debt by $9billion a month, to be paid back someday. When it comes due for payment in another 6 months what will they do? Another "simple accounting exercise" and raise the fiscal ceiling again. We all know that it was a "simple accounting exercise" that led to the GFC and the world is still in recovery from that. Another way of looking at it is - if the Chinese are silly enough to pick up the tab, then let them. Link to comment Share on other sites More sharing options...
colinmaclec Posted October 10, 2013 Share Posted October 10, 2013 Or another way of looking at it is why does all this debt end up with the top 1% in the world getting richer while the rest get poorer? Link to comment Share on other sites More sharing options...
surfndirt Posted October 10, 2013 Share Posted October 10, 2013 They are blocking ObamaCare as it is a Federal mandated tax which is going to be enforced by the IRS. That's right, the private bank named the US Federal reserve has been given the contract to chase down middle class American's that 'Opt out' of ObamaCare. If you don't sign up to an exchange i.e. you CHOOSE to have no medical insurance at all - then you pay a fine, starting at USD$95 a year and going up to god knows what. This fine is taken out of your IRS return. The ACA is the start of enforced socialised health care i.e. socialism - that's why they are trying to block it. America, (at least the good states) is not a socialist country - leading the charge are the congress reps from Texas, Arizona, WY, Montana and so on. You see it everytime you're there - more and more people of a right of politics bent moving to the above states. And so, more reps being elected from said states fighting the good fight. Only a matter of time until one in particular breaks away..... Link to comment Share on other sites More sharing options...
Parley Posted October 10, 2013 Share Posted October 10, 2013 The reality is that the US can never ever pay off their debt. They have to keep borrowing more money to pay their ongoing bills, and will never be able to pay it off. The debt keeps increasing ever more. Imagine if your own personal situation was like that. No hope of ever paying off your debts and just keep borrowing more to pay the monthly bills. Maybe they should default. Rather than just keep borrowing more and more money for recurrent expenses. Link to comment Share on other sites More sharing options...
Johndoe Posted October 10, 2013 Share Posted October 10, 2013 Maybe they should default. By them all migrating to Oz........................plenty of Poms seem to do it :biggrin: Link to comment Share on other sites More sharing options...
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