Today's episode explores the potential US government shutdown and its impact on the economy. It delves into the debt crisis and the implications for investors as well as the concept of the debt ceiling in the US government.
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Quick takeaways
The US government has a debt ceiling that limits its ability to borrow money, and hitting the ceiling can lead to a possible default on loans.
Government shutdowns in the US have occurred multiple times in the past, with limited economic impact.
Deep dives
The US government's debt ceiling and borrowing limits
The US government has a debt ceiling that limits its ability to borrow money, and hitting the ceiling can lead to a possible default on loans. However, they have found ways to raise or suspend the debt ceiling in the past. The current issue is slightly different as it involves the looming government shutdown if the US Congress doesn't decide on the annual budget before the end of the fiscal year. This shutdown would affect government agencies and employees, but historically, government shutdowns in the US have had limited economic impact.
Limited economic impact of government shutdowns
Government shutdowns in the US have occurred multiple times in the past, with limited economic impact. On average, the US economy still grows by 2.2% during these times. Government workers who don't receive salaries during a shutdown eventually make up for the loss in consumer spending. Lawmakers can also pass a continuing resolution to extend the previous year's spending and buy more time to resolve the impasse. Additionally, only a portion of the total spending is impacted by the shutdown, as a significant amount is mandatorily spent and not subject to debate. Investors are aware of these factors, leading to historically positive performance in the stock market during government shutdowns.
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The Potential US Government Shutdown and Its Impact on the Economy