Debt deal reached as crisis pushed to 2014
Congress finally pulled together a deal to reopen the government and raise the debt ceiling, pushing a decision and whatever compromise that might bring to next year. The government will open at current spending levels until Jan. 15, 2014, and the debt ceiling has been extended until Feb. 7.
Here’s the story from the Wall Street Journal:
Furloughed federal employees were set to return to work Thursday following a tense two-week political showdown that kept them home without pay, after President Barack Obama signed into law legislation reopening a partially closed government and averting a widely feared debt-ceiling collision.
National parks, as well as Washington memorials and museums, were also expected to reopen beginning as soon as Thursday, including two popular symbols of the two-week government shutdown and partisan dysfunction: the World War II memorial on the Mall and the National Zoo’s PandaCam. Government services were also expected to begin returning to normal levels of operation.
“In the days ahead, we will work closely with departments and agencies to make the transition back to full operating status as smooth as possible,” said Office of Management and Budget Director Sylvia Mathews Burwell early Thursday.
The reopening of government came after a bitter fight in the nation’s capital. Finally, late Wednesday, Congress passed legislation to end the political standoff, which had rattled financial markets, splintered the Republican Party and showcased Washington’s deep political differences.
The New York Times had a sidebar about the costs of the government shutdown outlining all the damage to the economy:
Containers of goods idling at ports. Reduced sales at sandwich shops in downtown Washington. Canceled vacations to national parks and to destinations abroad. Reduced corporate earnings forecasts. Higher interest payments on short-term debt.
Even with the shutdown of the United States government and the threat of a default coming to an end, the cost of Congress’s gridlock has already run well into the billions, economists estimate. And the total will continue to grow even after the shutdown ends, partly because of uncertainty about whether lawmakers might reach another deadlock early next year.
A complete accounting will take months once the government reopens and the Treasury resumes adding to the country’s debt. But economists said that the intransigence of House Republicans would take a bite out of fourth-quarter growth, which will affect employment, business earnings and borrowing costs. The ripple from Washington will be felt around the globe.
“We saw huge effects during the summer of 2011, with consumer confidence hitting a 31-year low in August and third-quarter G.D.P. growing just 1.4 percent,” said Beth Ann Bovino, chief United States economist at Standard & Poor’s, referring to earlier brinkmanship over the debt ceiling. “Given that this round of debt ceiling negotiations” took place during a shutdown, she said, “the impact on the economy could be even more severe.”
Economists say the shutdown and near breach of the debt ceiling would be unlikely to derail the recovery, now that Congress is moving toward resolving the impasse. In the weeks after the government reopens, there should be a modest rebound as employees spend their paychecks for the days they were on furlough and the government rushes to process backlogged orders.
Bloomberg reported that the shutdown has taken $24 billion out of the U.S. economy, right as it was beginning to recover:
The Senate accord was unveiled a day after Fitch Ratings put the U.S. AAA credit grade on ratings watch negative, citing the government’s inability to raise the debt ceiling in a timely manner, according to a statement after markets in New York closed yesterday.
U.S. stocks rallied, sending the Standard & Poor’s 500 Index (SPX) toward a record. The benchmark index rose 1.4 percent to 1,721.47 at 4 p.m. in New York after sliding 0.7 percent yesterday. S&P 500 Index futures added 0.1 percent after the gauge closed within 0.3 percent of a record in New York.
The MSCI Asia Pacific Index climbed 0.7 percent, heading for the highest close in five months. The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, was little changed. The yield on 10-year Treasuries dropped one basis point to 2.66 percent following yesterday’s six basis-point decline.
The shutdown took at least $24 billion out of the U.S. economy, S&P said in a report today.
It’s disappointing that the deal is only pushing the problems out until next year. While the reprieve meets the deadline for funding the government by raising the debt ceiling it does nothing to solve the long-term political problems. It looks like in three months, we’ll be writing the same stories about politics holding the economy hostage.
The business media has covered this story from nearly every angle possible, chronicling the toll the government shutdown has taken on people, bankers and confidence in the U.S. economy. What is baffling is how politicians continue to ignore these warnings, even after they’ve been reported over and over.