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US Shutdown – “Playing With Fire”

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THEME:   NATION

By SisiBroad | October 6, 2013 7:49 pm

The shutdown situation is a product of the US democratic system. The President Obama is both head of state and head of the federal government, without a guaranteed majority in either of the legislative bodies where new laws are debated and voted upon.

The shutdown situation is a product of the US democratic system

The shutdown situation is a product of the US democratic system

It’s the first shutdown since 1995-1996, when Bill Clinton and the House of Representatives (and its speaker, Newt Gingrich) also failed to agree on a budget to fund federal services. That row ran for 28 days (over two stages).
But it was a more regular event in the 1980s, usually for a few days at a time. In total, the US government has partially shut down on 17 occasions before today.

Moody’s Analytics reckons that a two-week shutdown would cut 0.3% off US GDP, while a month-long outage would knock a whole 1.4% off growth.

America has a legal limit on its borrowing of $16.7tn dollars, and it’s likely to hit that point in mid-October. U.S. Treasury Secretary Jack Lew accused Congress of “playing with fire” over an approaching deadline to raise the debt ceiling, as Republican opponents of the White House vowed to not pass a clean bill over the issue.

Lawmakers have until Oct. 17 to increase the government’s borrowing limit, or face an embarrassing default on its sovereign debt for the first time in history – a development that experts say could reverse the fragile U.S economic recovery.

Analysts at IHS Global Insight have calculated that it will knock $300m a day off US economic output (total US nominal GDP, or output, was around $16 trillion last year).

If a deal isn’t reached, then America would run out of borrowing room, meaning the world’s biggest economy would default on its debts. Both problems need solving – and a shutdown is now eating into valuable time to fix the debt ceiling.

Analysts anticipate a break in the stalemate in the next couple of weeks, but if that doesn’t happen and America begins to default of its debt, the consequences could be catastrophic.

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