9 October 2013, 15:45

What's next after the US government shutdown

американский флаг сша деньги доллар финансы финансовый кризис экономика США экономический кризис

As the US government shutdown enters its second week, economists and politicians around the world give their take on how the US got here, what happens next, and whether other countries should be worried. Join in with radio VR’s special project “Worldwide Shutdown” to learn what effects the largest stalemate in the latest US history might have on us all.

We’ve been here before. Surely it’s not all that bad. That’s what most of us probably thought when the US Congress announced the shutdown on October, 1st . However, analytics argue that it’s much more serious than we think. Michael Paalberg, freelance contributor to the Guardian and the Washington City paper, explains why it just about time to start worrying.

“It is a historic event but not because the shutdown itself is impressive, the government has partially shutdown several times before due to Congress being unable to reach budget agreement but these were always resolved very quickly. The exception is the last it happened, it lasted for three weeks in 1995-1996 but what is impressive at this time is a particular crisis that provoked the shutdown. In the past, even in the big one in 1995, the impass was always over some normal budgetary process in which Congress was temporarily unable to reach an agreement over how to fund government services. This is different, this time the fraction of Republicans in the House or Representatives has used the budget process to try to revoke an unrelated law that they didn’t like – the Affordable care act - President Obama’s signature piece of legislation. So as a result there isn’t really a clear solution as to what this would take because we’ve never been in a situation in which members of Congress have been willing to use this particular tactic to try to go around normal parliamentary procedures”.

A global financial disaster – that’s what the latest shutdown might lead to, according to some of the world’s leading economists. If the debt ceiling is not raised by October 17 the US would have no choice but to default on its loans. The most dire predictions point to a financial crisis with global implications, which is totally understandable since about half of the US debt is held by foreign governments, central banks and other overseas investors. But even if American law-makers manage to prevent the worst-case scenario, the current situation of uncertainty is already a killer of economic growth - Georgy Kunadze, leading Research Fellow, Institute of World Economy and International Relations explains.

“The USA is a superpower with the worldwide obligations. So, due to these obligations the US Government has to spend lots of money. And certainly we would like this budget deadlock to be broken and we would like the US to keep spending its money, the sooner the better”.

But while international investors are playing it safe, the US economy is already struggling, - Richard Magda,Vice-President, Prologics, says.

“It does have a ripple effect on the whole country when you think about it, because not only the people that work for the Government are being affected, because they are out of jobs, but it is the consultants that are working for contracts that the Government has. That's ripping down and then what is going to happen is it’s going to ripple down to people not being able take vacations, people not being able to buy their luxury things that they normally are used to doing. So, yes, it is going to have a very big ripple effect depending on how long they keep the Government closed”.

To avert the disaster the US Treasury has to find a way to pay back for $120 billion of short-term bonds by October, 17. An additional $93 billion of bills are due on October 24. But so far the country only loses money while the politicians fail to agree on measures that would prevent what might become a Worldwide Shutdown.

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