Sorry for not posting in a while. I have been inundated with work-I’m sure you all can relate. All of you, that is, except Congress. Since October 1, there has been a government shutdown. Its cause is rather complex, and I am humble enough to admit that many of the details go way past me. Basically, what happened is as follows: The House of Representatives has the ‘power of the purse’, meaning that it has the ability to fund laws. Because it is comprised of a majority of Republicans, the House of Representatives is overall strongly opposed to The Affordable Care Act/ Obamacare. (They are exactly the same thing!) They wrote a proposal with a list of laws to be funded, but conspicuously excluded
Obamacare. They sent this proposal to the Senate for passage, but the Senate, comprised of a majority of Democrats who support Obamacare, swiftly rejected it, saying that only a proposal including funding for Obamacare would be passed. The House of Representatives refused to do so, and the Senate insisted on standing their ground. (I think this is the perfect way of saying what happened by not choosing sides, and instead placing an equal amount of guilt on both parties). Such an impasse resulted in a government shutdown, a term that I personally think is ominous and evokes images of Armageddon- although with the way House of Representatives and the Senate are battling it out, this metaphor is not so far off. While Americans had a certain F-word on their tongues upon witnessing Congressional incompetency at its finest, the federal government had a different F-word on its mind: furloughs (a nice word for a leave of absence or being laid off for a period of time).
Now that you know why it happened, it is important to understand what this government shutdown entails. Technically, it is considered a partial government shutdown because only those considered non-essential are not working, such as NASA TV employees and food inspectors. Those that are considered essential, such as the Secret Service, are (fortunately) still working. Despite not being a full-fledged shutdown, the number of people who are not working is staggering: 800,000 people who work at federally owned and operated locations are suddenly without a job. Having so many people stop working on such short notice is sure to impact America’s economy.
Economists differ as to what the ultimate economic ramifications of the shutdown will be. Some say that the impact will barely be noticeable. They look back to the shutdown of 1995 as proof, when the economy improved in what was historically the longest one, at 21 days. Others claim that it will have a negative impact, with the results of a decrease in economic growth during the shutdown of 1976 to bolster their arguments. No matter how much support they can gather for their respective opinions, their conclusions will still be rather tenuous because every government shutdown is different due to unique circumstances.
My personal opinion is that the latter will occur. In essence, this is a sudden wave of unemployment, just with a more professional sounding name. Those furloughed had no way of
predicting or planning this outcome. The scariest part is that they have no way of knowing how long this will last. When will they start to earn income? By looking at the big picture, it is easy to see how a downturn in the economy seems inevitable. Suddenly, 800,000 people are spending less money in the market because they are making less money; the longer the shutdown, the longer they will be spending more conservatively. The fact that nearly a million people are pouring less money into the economy therefore leads me to believe that if they do not start working soon, there will be negative effects that are severe and long lasting. Especially with our fragile economy, still healing from wounds inflicted by the Great Recession (the name for the financial crash of 2007), we cannot afford any more damage.
What bothers me even more than the fact that there are so many people not earning any income is that congressman are. All of the people responsible for the shutdown and the subsequent furloughs of federal officials are constitutionally entitled to get paid. That’s right, check Amendment #27: “No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.” This means that their salary cannot be altered now, despite the fact that they are not doing anything, except perhaps causing economic issues for us in the future. I find it troubling that while Congressmen are also employed
elsewhere (for many, being a congressman is a second job), those that are federally employed do not have the leisure to fall back on another job. Their livelihood is dependent on their employment by the federal government. It is not only unfair that the wrong people are getting paid, but also inefficient. The government cannot afford to waste money, and yet here it is, paying those who are the root of the whole problem.
And yet the problems for the United States federal government do not end there. No, they are just beginning. On October 17, the government is set to reach the debt ceiling. What does that mean? The debt ceiling is a limit imposed by Congress on the absolute maximum amount of debt the United States can legally acquire, and no more (unless, of course, the amount is raised). And yet, as America spends more and more, it accumulates more debt. Once the amount exceeds the debt, the government will legally be forced to default on its loans-meaning that it cannot pay them back. It is important to note that the American government is so far behind on paying back its debts, mostly to China, that the default is not actually about paying the loan off on time-but rather paying back the interest on the loan (You don’t think other countries to just lend us money and not expect anything in return, did you?) If America cannot pay back the money, America’s future will not look good. People will lose confidence in the American economy, causing the Stock Market to crash, even more sharply than in 2007. Also, people would be hesitant to invest in the future, causing America to lose out on the opportunity to conduct business with wealthy investors.
I don’t want to scare you, but it is important to know about the government shutdown and the looming debt ceiling. Both play a crucial role in the business world and have a major impact globally. I hope this crash course gave you a solid foundation in what has been happening over the last week, especially if any of you have felt overwhelmed by the sudden deluge of reporting that was sometimes difficult to comprehend.
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