The United States and financial institutions across the world are breathing a tremendous sigh of relief as both the debt ceiling crisis and government shutdown ended last night.
Both houses of Congress and President Obama came together at the 11th hour and finalized the most anticipated piece of legislation to date. Although the journey to this outcome felt more like a ride on the road to perdition than on the road to economic recovery, the endpoint was nonetheless reached. Senator John McCain (R-AZ) personified this feeling by stating that the shutdown and debt ceiling negotiations have been an “agonizing odyssey.” It may have been ones of the worst moments for the American Congress in recent history but American citizens will be coping with the long term effects of the government crisis in the coming months.
The current bill passed by Congress and signed by President Obama ceases the current federal government shutdown and will raise the debt ceiling enabling the U.S. Treasury to pay the country’s bills. The resolution will fund the federal government till January 15th and extend the $16.7 trillion debt ceiling till February 7th. Most importantly the bill included back pay for furloughed federal workers and establishes a budget conference committee.This bill considered to be a compromise between the parties allowing Republicans to achieve slight changes to Obamacare and Democrats to raise the debt ceiling. This compromise is only a small bandaid on the “Budget Battle” that is likely to continue to be waged in Congress.
But the bigger question and picture is, What’s next? The shutdown was anything but a harmless exercise of American democracy and will have ramifications that could be felt in many months to come. Standard and Poor 500 (“S&P”), the world’s leading provider for independent credit risk research, published a report stating that the current government shutdown has cost the American economy $24 billion. Additionally, S&P reported that 4th quarter growth has decreased from a projected 3% to a present 2%. The American economy cannot face accruing more debt and increasing restrictions on its continuous fragile recovery.
Since midterm elections for both houses of Congress will happen next year, another shutdown and debt ceiling crisis could occur again this winter. This looming possibility of another government shutdown is going to have adverse effects on the coming holiday season,especially for retailers. Economist are predicting a “Humbug holiday season” with many federal employees, civil contractors and employees who rely on government licensing to limit their consumption of consumer goods. They are similarly stating that this government spectacle will cause a decrease in job creations since many companies will be waiting to see the overall economic effects of the current government shutdown. Waiting for the unknown will likely cause the American economy to remain in neutral until a long term economic policy can be reached.
If there is a way to predict the future for the American government and economy a look to the past is critical in understanding what the future might hold. In the 1995-1996 government shutdown, the government passed a similar bandaid extension bill that resulted in the government shutting down again a month later. The underlying disagreements between the then Republican Congress and Democratic President Clinton were not resolved in that short period of time and a similar situation could occur in the present political climate.
The current underlying budget disputes between Republicans and Democrats will once again be at the forefront of coming negotiations and committee meetings. Republicans would like to reduce spending and concentrate on reducing the deficit while Democrats would like to raise taxes to continue the current level of federal spending. The vast differences between these two approaches has caused bipartisanship to be almost nonexistent. The past sixteen days have shown that each political party and both houses of Congress are willing to sacrifice workers in the hopes of sending a message to its opposition. The American people and especially its workers can no longer bare the brunt of Congress’s petty fights, but instead need congressional support and action to aid the recovering economy.
The real issues surrounding the present government shutdown and debt ceiling crisis are not fully resolved and may not be resolved by January or February. Added to the turbulence of the “Budget Battles,” only 0.04% of Americans are able to enrol in Obamacare through Healthcare.gov and Social Security is seeing one of the smallest yearly increases in recent history.
Congress now needs to start addressing the other growing travesties that Americans are facing daily. Realistic budget goals that will accomplish positive reforms for American citizens, the economy and job markets should be the most important goal of every member of Congress. Senator McCain stated that the past weeks have been “the most shameful chapters he has seen in the Senate” and hopefully they will not be repeated in the coming months. But, we should have our doubts.
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