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The Government Shutdown's Long-Term Effects

The short-term effects of a government shutdown mean furloughed workers, closed parks, and delayed economic reports - but the long-term implications are far more painful.

The political temper tantrum known as the government shutdown is now a week old, the rhetoric is heating up, and there's no sign that the peace pipe will be smoked anytime soon.

While the politicians at the top of this heap continue to be rewarded with their government paychecks, more than 2.1 million government workers do not. Some 800,000 Uncle Sam employees were initially furloughed (although 350,000 from the Defense Department were just called back), and another 1.3 million will most likely see their paychecks delayed.

And don't forget the private-sector contractors that sell goods and services to the government – to the tune of $300 billion annually. For defense contractors, drug suppliers, travel agencies, and a wide variety of industrial contractors and suppliers, that means no sales, no paychecks.

History shows us that in a normal economy – and if the government shutdown is short term – the effects on the overall economic health of our nation and stock market would be minimal. There have been 17 government shutdowns from 1976 to 1995, and most had a brief, negligible effect on the economy.

But in 1995, the 21-day government shutdown cost the federal government $1.5 billion, or $2.1 billion in today's dollars. Research firm IHS estimated that this current shutdown is costing us about $300 million a day. And Goldman Sachs projects that gross domestic product will be reduced as much as 0.9% if the shutdown lasts three weeks.

But the government shutdown's long-term effects are much more far-reaching.

The fact is, we are not in a normal, or healthy, economy…


Watch as Keith Fitz-Gerald tackles some of the long-term economic issues we'll face, thanks to our closed government.

Economic Effects of a Government Shutdown

The unemployment rate – as of August – still remains at a stubborn 7.3%. Of course, we don't know what September's rate was, because the folks calculating those numbers are on furlough.

But any prolonged uncertainty is likely to put the brakes on new hiring, as companies will lose the small bit of confidence they now have and feel obliged to rein in any unnecessary spending.

In a study by the Business Roundtable, one-half of managers responded that the squabbling over the shutdown and upcoming debt ceiling would "have a negative impact on their plans for hiring additional employees over the next six months."

And then there's housing…

Join the conversation. Click here to jump to comments…

  1. H. Craig Bradley | October 9, 2013


    There are reports that banks are stocking extra money in ATM's in anticipation of a run for extra cash in the event the Federal government "defaults". So, the public seems concerned enough to be stockpiling extra cash. In addition, there is concern that money market investors, particularly govt. (treasury) money market investors may withdraw money and make extra bank deposits. So, money is on the move. Not fast money, but "fear money". One month T-bills have seen the interest rate go up in Oct., as well. Don't yell "default" in a crowded bank.

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