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Takeaways from the shutdown and debt ceiling crisis

Posted By Claes Bell On 10/17/2013 @ 2:30 pm In Government | 1 Comment

Last night the Senate and the House of Representatives reached a deal that will fund the government until Jan. 15 of next year and extend the debt ceiling enough to cover U.S. borrowing through Feb. 7. While that gives us another stupid Washington catfight to look forward to early next year, it at least ends the current government shutdown and avoids a disastrous U.S. default, for now.

So with 16 days of government shutdown fun and a debt ceiling crisis behind us, it’s time to take a look at what we learned. Here are some of the big takeaways.

1. Having liquid savings on hand really comes in handy if your employer just up and decides to stop paying you. Nearly a million government workers and contractors were furloughed by the shutdown, making it difficult for workers who were already living paycheck-to-paycheck to cover their bills and in some cases even buy food [3]. Even a small savings cushion [4] can help protect people from the whims of their bosses, whether that’s a CEO who decides the company needs to make cutbacks, or a Congressman who can’t tell his budget from a hole in the ground.

2. “Riskless assets” are mythical creatures not unlike unicorns and chupacabras. While a lot of investing theory is based on the idea that some assets are “riskless” — that they’ll pay out what they promise regardless of circumstances. Historically, the U.S. Treasury has been thought of as the closest thing to a riskless asset that occurs in real life, but Congress came within a James Bond movie marathon of pushing the U.S. into default. That would have not only left a lot of people who thought their money was safe wondering what their Treasuries were going to be worth from day to day, it would have shaken the foundations of global markets [5], with dire consequences for investors.

3. The U.S. economy can’t catch a break. Before the shutdown mess, the economy had been looking, well … OK. It was growing at 2.5 percent and unemployment was trending downward. This shutdown may have thrown a wrench in the works; Standard & Poor’s estimates it will take .6 percent off fourth-quarter growth, or about $24 billion. And consumer confidence — a key indicator because the economy is highly driven by U.S. consumers buying things — showed the sharpest drop its had since Lehman Brothers tanked in 2008.

4. Relying on government benefits carries more risk than we thought. Lots of people who rely on government benefits, including families that used the food program WIC, veterans and their families who depend on the Veterans Administration for health care and other benefits, and families participating in health research at the National Institutes of Health, all basically found themselves out of luck during the shutdown. It’s not their fault they were put in that position, and many don’t have a choice in the matter, but it does expose the risk of having to rely on the competence of our elected officials to receive essential benefits and services.

5. U.S. economic leadership is not inevitable. This is a big one. It used to be that when it came to the global economy, there was the U.S., and then there was everyone else. By virtue of U.S. industrial might, technology and financial innovation, the U.S. has enjoyed a position as the largest and most stable economy in the world in the postwar era, and we’ve been able to shape the course of the global economy to our benefit. U.S. consumers get lots of upside out of that — our dollars tend to hold their value well compared to other countries’ money so we can import lots of nice stuff made abroad, we have greater access to credit and pay lower rates to borrow money than consumers in other countries, and U.S. companies we work for and invest in have done incredibly well over the last five decades or so. But that position could easily be eroded by a political system has shown it can be incredibly dysfunctional — and don’t think other countries haven’t noticed that.

What do you think? What did you take away from the crisis?


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[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/takeaways-shutdown-debt-ceiling-crisis.html

[3] buy food: http://www.cnn.com/2013/10/14/politics/furloughed-workers-food-pantries/

[4] savings cushion: http://www.bargaineering.com/articles/government-shutdown-case-seeking-financial-independence.html

[5] shaken the foundations of global markets: http://www.bargaineering.com/articles/debt-ceiling-crisis-annihilate-401k.html

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