Federal shutdown costs U.S. billions and erodes investor confidence

From the New York Times:

The government shutdown that ended this week will cost the United States economy several billion dollars, according to estimates by economic research firms.

But the affiliated damage — like the undermining of consumer and business confidence — will be far greater, economists said, especially combined with the financial effects of the near-breach of the country’s statutory debt ceiling.

When the federal government shut down on Oct. 1, permit offices across the country stopped accepting fees, contractors stopped receiving checks and research projects became stalled. Such disruptions come with a price tag, although it will be small in the context of the $3.5 trillion the federal government spends every year.

It might take months for the Obama administration to come up with a thorough accounting of the direct cost to the taxpayers of putting much of the government out of business and then reopening it. Several offices, including the National Aeronautics and Space Administration and the National Institutes of Health, said they were in the process of gauging the disruptions.

“The three weeks of government shutdown will cost the economy $3.1 billion in gross domestic product from lost government services,” estimated Paul Edelstein and Doug Handler of IHS Global Insight, an economic research firm. “There will also be some impact from lost private-sector jobs tied to the shutdown, as well as a loss of consumer and business confidence resulting from the debt-ceiling showdown.”

Mr. Edelstein and Mr. Handler added that the shutdown had delayed the data necessary to evaluate the shutdown: “The exact impact on the rest of the economy will be hard to measure until delayed economic data are released.”

Read the entire article here.

Watch an online video explaining what the shutdown will cost the economy.

Shutdown: Complacency on Wall Street Could Be Worse Than a Panic

From the New York Times “DealBook” Blog by Jason Eissenger:

Don’t look to a market panic to save us.

We are in upside-down world, where a freak-out now would help stave off financial devastation later. By staying cool, the markets are making a crisis more likely.

Sure, the stock market has ebbed lower, but it hasn’t plunged. Short-term bond markets have hiccupped. Spreads on United States credit default swaps have widened, indicating a slighter greater fear of default, but nothing drastic. The financial media keep grasping at any movement to demonstrate investors are worried. But market participants simply don’t think that the government will end up doing something so obviously reckless and harmful as refusing to pay its debts.

Wall Street’s lack of worry reflects cynicism about Washington (who doesn’t feel that?) but also a deep misreading of how significant the ideological fissures are in the capital. Wall Street is misunderstanding the extremism of the House Tea Party Republicans who precipitated the government shutdown and debt ceiling crisis.

READ THE COMPLETE ARTICLE HERE.