Tuesday, September 24, 2013
How a Shutdown could affect the economy
http://money.cnn.com/2013/09/23/news/economy/shutdown-economy/index.html?iid=SF_E_River. Due 30 Sep 2013. Discuss economic costs of an government shutdown....
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The economic costs of a government shutdown can grow to be very extensive based on the length of time that the government is shutdown--the longer the shutdown lasts the greater the damage will be. Mark Zandi, chief economist and co-founder of Moody's Analytics, estimates that a month long shutdown would result in a GDP reduced by 1.4 percentage points. Part of the reason why this would occur is because the economy is so fragile at this point. As well as the fact that a new quarter is starting soon, October 1st, and if Congress doesn't pass the funding bill then the shutdown will occur right at the beginning of a new quarter. During the shutdown, the money that federal agencies own will be delayed and hundreds of thousands of federal workers will would be laid-off without any pay. Also, at this point most investors wouldn't want to invest anymore and opportunities for more available jobs will diminish. The only services that will be funded are the simple essentials that Congress deems critical, such as a traffic control.
ReplyDeleteEconomic costs of a government shutdown can be very significant. It is said that the effects will get worse the longer the shut down goes on. The chief economist of Moody's Analytic states that a shutdown of only a few days will cost the economy .2% of annualized growth during the fourth quarter but if the economy were to shutdown for 3-4 weeks, then it may have a larger impact such as lowering the GDP by 1.4% for the quarter. In 1995, the government shut the economy down for a total of 4 weeks, and during that time only .5% of the growth was cut off. Zandi believes though that if the government were to have a shutdown today, the effects would be much greater due to timing and the stability of the economy. A shutdown of the economy would also cause companies to invest less money and causing problems to the consumer.
ReplyDeleteThe economic costs of a government shutdown can be detrimental, depending on the length of the shutdown. The longer it goes on for, the deeper the cuts. Mark Zandi, chief economist and co-founder of Moody's Analytics, believes that a three to four week shutdown will result in a GDP decrease of about 1.4 percentage points for the quarter. Although the four week shutdown in 1995 cause only a half a percentage point decrease of growth in the fourth quarter that year, the consequences of this year's shutdown are estimated to be much worse. Zandi bases this estimation on two main reasons: the timing of the shutdown and the fragility of the economy today. A government shutdown now will first "increase uncertainty", which will lead to companies becoming reluctant to invest in new resources and hiring. It will also require the Fed to advance in experimental policies, which do not guarantee positive results. Possibly one of the worst aftereffects will be the withdrawal of funds from many government run programs. Let's just hope that these predictions won't be as deleterious as they sound.
ReplyDeleteA government shutdown could cause a decrease in the national GDP. Its severity would be dependent on how long the shutdown lasts. A weeks shutdown wouldn't be very significant. However a shutdown that lasts for four weeks could reduce the GDP by about 1.4 percentage points according to the article.
ReplyDeleteThis government shutdown is considered to be more catastrophic than it was the last time in 1995 due to two reasons. The 1995 shutdowns started in the second half of the quarter. This time, if Congress fails to pass a funding bill, the shutdown will begin on Oct. 1, the start of a new quarter. This time, while the shutdown discourages the business to invest in plants, equipment, and hiring, it also forces the Fed to continue with experimental policies. Although any federal program or agency charged with protecting life and property will remain uninterrupted by the shutdown, much of the federal government would be shuttered, and the money those agencies would normally spend would be delayed. As a result, hundreds of thousands of federal workers would be furloughed without pay. Finally, the consumers in general would be discouraged to spend, thus making the economy even worse.
ReplyDeleteThe economic costs of a government shutdown would vary depending on how long the shutdown lasts. Mark Zandi, chief economist and co-founder of Moody's Analytics, said that if a government shutdown lasts for only a few days, it would only cost the economy tenths of a percentage point of annualized growth during the fourth quarter. This is not much when compared to if the shutdown lasts for 3-4 weeks which could be extremely detrimental, and could reduce GDP by 1.4 percentage points for the quarter. This could mean increasing uncertainty and companies would investing less in new plants. Also this economic shutdown could result in hundreds of thousands of federal workers being furloughed without pay.
ReplyDeleteThe economic costs of a government shutdown would be variable in terms of the length of the shutdown, but nonetheless be very detrimental. Significant economic damage would occur, reducing GDP by 1.4 percentage points for the quarter. It would also increase uncertainty which makes companies less willing to invest in new plants, equipment and hiring, conversely causing hundreds of thousands of federal workers to be furloughed without pay.
ReplyDeleteMark Zandi, chief economist and co-founder of Moody's Analytics, provided deeper insight into the government shutdown. Another factor that could affect the economy in a prolonged shutdown is consumer, investor and business psychology, Zandi said.
The economic cost of a government shutdown include but are not limited to the reduction of the GDP by 1.4%, based on a comparison to the last governmental shut down which occurred in 1995, when the economy was much more stable. The economy has only become even more unpredictable since then and thus the economic impact of a governmental shutdown could be even worse than studies indicate, and the results could be must worse than what is empirically predictable.The second cost of a governmental shutdown is the efficiency that would be lost when a government becomes inactive for a period of time. This would implicitly cost the government money because they would need to exert or invest more later on to compensate for the inactivity during the shutdown itself. These are the costs of a governmental shutdown.
ReplyDeleteAccording to the article a government shutdown would affect the economy depending on how long it lasts. Mark Zandi estimates a government shutdown that lasts a few days wouldn’t do much, but one lasting 3 weeks or more could do some noticeable damage. Mohamed El-Erian states it will “increase uncertainty which makes companies less willing to invest”. Also federal workers will have their pay put off.
ReplyDeleteCurrently the United States government is in the throes of a possible shutdown, a tactic from the GOP to defund “Obamacare.” The shutdown will only cause more problems the U.S. economy. The real question however, is, what are the true implications to the economy and this is where we depend on the expert’s opinions and predictions.
ReplyDeleteBoth the Congressional Budget Office Director Douglas Elmendorf and the co-founder of Moody's Analytics, economist Mark Zandi agree on one facet of the dilemma; the amount of time the shutdown lasts will be the overall determining factor of how hard the economy will be hit.
Zandi and CBO Dir. Elmendorf estimates that a shutdown lasting only a few days will have little to no affect on the economy. Zandi however believes that a shutdown lasting for several weeks would result in severe economic damage, reducing the GDP as much as 1.4 percentage points for the quarter while Elmendorf projects little to no series financial effects. Historically, when analyzing two shutdowns occurring for a joint total of 4 weeks in 1995-1996, he estimates that
There was only a loss of about half a percentage point off growth during the fourth quarter of that year.
Zandi explains that he expects the economy to be harder hit this time because the shutdown would occur in the beginning of the 4th quarter of 2013 versus half way through the fourth quarter in 1995-96. He then adds that in 1995-96 the economy was on the verge of the tech boom, while today the economy is much more fragile.
Mohamed El-Erian, the CEO of bond fund firm PIMCO, agrees with Zandi that a shutdown could have disastrous effects but for different reasons. He believes that the shutdown will lead to uncertainty, which in turn result in companies spending less on new buildings, equipment and laborers. He also explains that it forces the continuation of the Federal Reserve’s “experimental” policies where short term rates are at zero and long term rates at the lowest they have been historically and the outcome of this is yet to be seen.
The costs of and government shutdown could be vary by the situation. If a government shutdown lasts for only a few days, it would only cost the economy tenths of a percentage point of annualized growth during the fourth quarter. Zandi explains that he expects the economy to be harder hit this time because the shutdown would occur in the beginning of the 4th quarter of 2013 versus half way through the fourth quarter in 1995-96. He then adds that in 1995-96 the economy was on the verge of the tech boom, while today the economy is much more fragile. A government shutdown now will first "increase uncertainty", which will lead to companies becoming reluctant to invest in new resources and hiring. Depending on the perspective that you’re coming from or what you expect the government or economy to do for you, a government shutdown could have little or significant effect. However, a general consensus among economists is that people overestimate the relationship between the economy and government and that, therefore, effects would be minimal.
ReplyDeleteThe costs of an economic shutdown would vary depending on how long it lasts. According to Douglas Elmendorf "The effects build over time: Two weeks is worse than one week, and three works is still worse than two weeks, and four is still worse than that." Zandi explains that if the shutdown lasted three to four weeks, it would do significant damage to the economy, possibly reducing the GDP by 1.4 percentage points for the quarter. The economic shutdown can also have the effect of hundreds of thousands of federal workers being laid off without pay.
ReplyDeleteIf the government shutdown does occur the economic costs would vary depending on how long exactly the government is actually shut down for. Zandi stated that a shutdown of the government for only a few days will cost the economy .2% of annualized growth during the fourth quarter but if the economy were to shut down for 3-4 weeks, then it may have a larger impact such as by lowering the GDP by 1.4% for the 4th quarter. In 1995, the government had been shut down for a total of 4 weeks. Zandi is under the impression that even if we are going to be shut down for the same amount of time, that it would have a harder hit on the economy than it had had before. This is mainly due to the timing and how it is in the beginning of the 4th quarter. He believes that a shutdown of this magnitude could result in reducing the GDP about 1.4 percentage points which would result in hundreds of thousands of federal workers being laid off while not receiving pay most likely. The government not providing funds for many of their run programs would also be a catastrophic effect on the economy if the government does eventually shut down.
ReplyDeleteThe effects of a government shutdown would be much worse this time around than it one was in 1995. According to Mark Zandi, America would be in a ton of trouble because of a few reasons. One reason would be timing, because if the government were to shutdown now, it would begin in the start of a new quarter, rather than the second half of a quarter. Along with that, Zandi points out that our economy is much more fragile now than it was in 1995 because in 1995 it was on the verge of the tech boom. If the government were to shutdown, it will increase uncertainty within the businesses of America, force the Fed to continue to experiment with policies who's impacts are uncertain, along with leaving thousands of federal workers furloughed without pay.
ReplyDeleteA government shutdown would definitely be inimical. A post on Washingtonpost.com by Josh Hicks and Marjorie Censer states that experts say the shutdown would waste billions in government funds and put a toll on the markets. Mark Zandi, chief economist and co-founder of Moody's Analytics estimates that a shutdown that lasts just a few days might cost the economy two-tenths of a percentage point of annualized growth during the fourth quarter. He also stated that if a shutdown were to last as long as 3 or 4 weeks, it could reduce our GDP by 1.4 percentage points for the quarter. All in all, determining how a government shutdown will affect the economy depends on how long the shutdown lasts.
ReplyDeleteEconomic cost of a government shutdown would be catastrophic, depending on how long the shutdown lasts, Let say for example if it was shutdown for a few day the reduction of the GDP would only be 0.2% this is very low when compared to an economic shutdown of 3-4weeks an the reduction of the GDP is 1.4% Zandi explains that he expects the economy to be a harder hit this time.
ReplyDeleteA governmental shutdown could have incredibly detrimental effects on the economy depending on its length. A few days would only impact a quarter a few decimal points, however, a shutdown that last for a few weeks can have a major impact on the economy in a negative way. Zandi predicts a crash in the early fourth quarter which will have more detrimental effects than the last fourth quarter crash in 1996. He believes that the current economy is more fragile than it has ever been before. A crash would not only harm the GDP by 1.4&, but discourage companies from spending or investing money. A government shutdown could halt the payment of government employees or even cause them to lose their jobs. A shutdown would also significantly decrease the amount investors are spending and seriously damage the economy.
ReplyDeleteA government shutdown, whether short or long, can cause a significant impact on a nation’s economy. Based on an estimate by Zandi, a shutdown of just a few days can result in two-tenths of a percentage point of annualized growth being lost. A shutdown of three to four weeks, on the other hand, Zandi predicts will cause a loss of 1.4 GDP percentage points. This is a dramatic loss that would cause great damage to the economy. Without government regulation, producers and consumers wouldn't be able to operate as efficiently. Federal systems serve to protect life and property rights, which is crucial for maintaining productivity in an economy.
ReplyDeleteA governmental shutdown could have incredibly detrimental effects on the economy depending on its length.Analytic states that a shutdown of only a few days will cost the economy .2% of annualized growth during the fourth quarter but if the economy were to shutdown for 3-4 weeks, then it may have a larger impact such as lowering the GDP by 1.4% for the quarter. In 1995, the government shut the economy down for a total of 4 weeks, and during that time only .5% of the growth was cut off.The economic shutdown can also have the effect of hundreds of thousands of federal workers being laid off without pay.
ReplyDeleteA government shutdown would be a catastrophe, especially if it last for more than a week. The economy today is in bad condition and is barely recovering. A shutdown will slander whatever little progress we were having and the economy won’t be able to handle it. There will be a multitude of effects it will bring. According to Bernanke it will have a very serious consequence for the financial market. Most government funded programs such as parks, museums, government programs and offices will be shut down as a result. This also means no new laws or bills can be made and put to effect. Hundreds of thousands of fed employees won’t be paid and businesses will be uncertain with hiring. In all a prolonged shutdown will bring disaster and uncertainty.
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ReplyDeleteThe shutdown affects the economy because they stop all government pay to anyone that isn’t a member of congress. When this happens, the effects trickle down. When you don’t pay park rangers and keep them home and close the national parks, private businesses like touring companies, local food chains, and gift shops that all rely of tourism lose money. That is just one example. Some people that have mandatory jobs such as federal agents need to go into work without pay and will not get paid until congress passes a budget. These people are called people with essential jobs and are at least guaranteed their pay eventually. I am not sure if it is true for all sects, but for some, if the call in sick, they are deemed non-essential federal employees. Federal employees with non-essential jobs are on furlough status and won’t necessarily get paid back for their forced leave. They will get paid only if congress votes yes on it. They did vote yes the last time there was a government shutdown.—Ian Hunt
ReplyDeleteThe economic costs of a government shutdown are determined by several factors. One of the most important is the length of the shutdown, as longer shutdowns have more detrimental damage. The chief economist and Co-founder of Moody’s Analytics, Mark Zandi, suspects that a government shutdown of 3 or 4 weeks would lead to a 1.4% GPD reduction. The figure is more drastic than the .5% drop following the 1995 shutdown because of the fragility of the economy at this point, another important factor to determine the gravity of a shutdown. Another reason for the estimated .9% difference is the upcoming 4th quarter. During the shutdown only the federal agencies that are deemed absolutely necessary will continue to function, including air control, for instance. The “non-essential” workers will be furloughed- sent home with no pay. All governmental employees have the opportunity to receive pay if Congress votes on it. The business-owners in the DC area and around major government agencies affected by lack of customers will be permanently affected. Those at the receiving end of government-run programs, such as medical trials, will have to learn to live without the help. There can only be hope that a decision is reached sooner rather than later.
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