Could Americans Feel Impact of Shutdown in Their Wallets?


"It would just show Americans that our government isn't really equipped to come to agreements and really handle the challenges facing the country," Swagel added.

Neither side is likely to prolong the shutdown, if it happens, and will likely come together on an agreement sooner than later.

The partial government shutdown of 1996, the second in President Bill Clinton's administration, was hugely unpopular and sent Republicans toppling down in the polls.

Shutdown Looming: How Would it Impact You

In today's economic climate, it's difficult to predict the real impact of a shutdown but some say given the uncertainty it could be worse than in 1995.

"When you are on thin ice, which the country is in right now because we're in an unsustainable situation, small tremors can have large repurcussions and they might not normally," said Maya MacGuineas, president for the Committee for a Responsible Federal Budget. "The global markets are watching the U.S. with more closer eyes than they have in the past and it's impossible to predict what shivers this might send through the market, that's why we need to get the overall budget situation under control so we're not so vulnerable."

A confidential report prepared by Goldman Sachs for its clients estimated that while the potential for a shutdown does not present a major risk, for each week the federal government is closed, federal spending would reduce by around $8 billion, and could reduce real GDP growth by as much as 0.8 percentage point at an annualized rate in the quarter it occurred.

The impact would be more pronounced if the shutdown lasted for more than a week, the report suggests.

Just like individuals, federal agencies eventually have to pay the bills and if they don't have any money allocated, that would be close to impossible.

Federal government contractors are likely to feel a bigger pinch in their pocketbooks. Already in a continued limbo by the uncertainty of their future source of funding, contractors -- unlike federal employees -- will not be paid for the time they were furloughed.

Over the long term, the bigger issue will be whether to raise the debt ceiling and tackling the deficit crisis that is burdening the U.S. economy.

Administration officials say raising the debt ceiling is necessary to prevent a default but Republicans argue that such a move won't provide a long-term fix.

"If the debt ceiling was not raised, there would be a significant problem in funding the government and I think you could have interest rates moving higher with the dollar being hit significantly," said Lynn Reaser, chief economist at Point Loma Nazarene University and former economist at Bank of America. "The U.S. would appear riskier to investors both here and abroad and that would push interest rates up significantly. The offset would be some potential slowing in overall economic growth."

Interest rates are likely to rise amid greater uncertainty, and with the housing market still struggling to recover from the collapse, it could make the situation even more detrimental.

In an ABC News/Washington Post poll conducted shortly after the nearly three-week partial shutdown in 1995 and 1996, 75 percent of Americans said it had been a "bad thing" and about 50 percent blamed Republicans in Congress for its occurring. But 50 percent approved of how Bill Clinton handled the situation, versus 22 percent approval for the Republicans.

While the shutdown was broadly unpopular, most people by far, 88 percent, said they had not been personally inconvenienced by it.

Gary Langer contributed to this report.

-- This embed didnt make it to copy for story id = 13002855.
  • 1
  • |
  • 2
Join the Discussion
blog comments powered by Disqus
You Might Also Like...