Tuesday, October 1, 2013

Government shutdown and the debt-ceiling again

 So it's happening, even though it seemed unlikely at some point. The government is shutting down, and around 400,000 federal workers will go immediately without pay (see here). Many of the comparisons are with the previous shutting down in November 1995, during the Clinton administration. Yet, back then the economy was in the middle of a boom, predicated on a bubble, but a boom nonetheless. And also, as revenues were increasing, the economy was back then on its way to fiscal surpluses, and lower debt levels. So no debt-ceiling catastrophe loomed in the horizon. Now a debt-ceiling limit may lead to cuts in spending of the order of around US$ 600 billion dollars. So a weal recovery may turn into a recession. Long live austerity!

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