The United States Budgetary and Debt Problems

RESEARCH ON

THE UNITED STATES BUDGETARY AND DEBT PROBLEMS

IN 2013

NGUYEN KHANH GIANG

1385858

Research paper for ECO 3353, taught by Dr. Minadeo

Abstract

The United State government has experienced a partial shutdown in September of 2013. The White House budget office issued orders for government offices to start closing down. The shutdown is the latest action in the on-going battle between the Republicans and Democrats over budget issues. Nevertheless, US government is believed to be standing at the brink of default when Congress has to raise the debt limit as a temporary solution. The consequences of the 18-day delay are huge, not just for the US but for the global economy.

This research gives information about the impact of the 18-day shutdown particularly on the US economy itself and generally on global economy.  This research paper also discusses about the consequences on the economies if US government defaults and might there be another shutdown in the near future.

In late 2013, the United State has experienced a 16-day-shutdown due to the inconsistencies in financial balancing. This was the third longest shutdown occurred in the nation’s economic history. This crisis has caused severe impacts on either the world largest economy or the entire global economy. The US government had to shutdown when Congress failed to enact legislation on funds or set resolution for the interim authorization of appropriations for fiscal year 2014 and the amount of federal debt is also approaching its legal limit. The federal government had to restrict most routine operations and putting efforts to extending the debt ceiling $16.7 trillion meanwhile they were at the verge of insolvency.

What are the impact of government shutdown on American and the world?

The crisis brought economic disruptions and financial injuries during 16 days of silence to not only the Americans. According to Standard & Poor's, global economy had lost $24billion (£15billion), shaving 0.6% off of economic growth in 4th quarter. During the shutdown, it was impossible for lenders and banks to check government income as well as Social Security Number verification services leads to delaying approval of mortgages and other loans. U.S. stocks fluctuated, after the Standard & Poor’s 500 Index fell to a three-week low, as investors weighed the economic effects of the shutdown. The shutdown has delayed $4 billion in tax refunds and possibly delayed the start of the 2014 tax-filing season by two weeks. 500 small businesses are denied seeking to keep their workplaces safe, since States had shut the federally funded Consultation Program. “Government spending touches every aspect of the economy, and disruption of spending, more than the direct loss of income, threatens to damage investor and business confidence in ways that can seriously harm economic growth.” - Janney Scott, LLC chief fixed income strategist Guy Lebas said.