The cost of the most expensive government shutdown in history was nearly $3 billion. The Congressional Budget Office estimates that it was permanently driven out of the US economy during the 2019 gridlock.
Now, with the likelihood of another shutdown starting in just 13 days, the likelihood that prices could rise even higher this time increases.
Between the deeply entrenched parties – including House Republicans reportedly engaged in shouting matches behind closed doors and openly ridiculing the cost of the shutdown – as well as new risks posed by wary credit rating agencies, coming A shutdown could enter uncharted financial territory, especially if the shutdown drags on.
The costs to the government and the US economy are increasing with each passing day of the shutdown and, while much of the money held back is spent late in the government’s reopening, studies have shown that billions of dollars could be permanently lost. is likely to.
“It’s a real thing that affects people’s lives, and it doesn’t seem to be a big factor in whether something gets done at some point in time,” says Casey Burgett of the Graduate School of Political Management at George Washington University. “
“It’s after the fact that we all point and say, ‘Man, that was stupid.’”
How do stoppages work?
How long might the coming shutdown last? Goldman Sachs said in a recent note that its baseline expectation was two to three weeks, with Strategas Securities similarly seeing “about two weeks” as a strong possibility.
Those projections — which many in Washington say are underestimated — would quickly rank among the longest shutdowns in history.
Others are considering much longer and historically unprecedented timelines. Mark Zandi, chief economist at Moody’s Analytics, floated the idea of a shutdown throughout the fourth quarter, which would break the all-time record of 35 days and shave 1.2 percentage points from fourth-quarter growth.
Meanwhile, many conservative Republicans have tried to minimize the effects. Representative Andy Biggs (R-Ariz.) shutdown feature Simply “a temporary pause on non-essential spending that will allow us to get our financial house in order.” Rep. Bob Good (R-VA) says: “We should not be afraid of a government shutdown.”
As he points out, much of the federal government is simply shut down. Programs like Social Security and Medicare are unaffected.
House Speaker Kevin McCarthy (R-CA) speaks to reporters as he leaves the House Republican Caucus meeting at the Capitol on September 14. (Kevin Dietsch/Getty Images)
But other programs that depend on annual appropriations have significant costs. It is common for these agencies to spend thousands of hours developing contingency plans in advance of a shutdown and then for furloughed workers to eventually be paid for their time off.
Other federal employees — such as TSA agents in previous shutdowns — are told to report to work but don’t get paid until the government reopens.
This was just after the end of the longest shutdown in U.S. history, which occurred from December 22, 2018, to January 25, 2019, and centered on a fight between then-President Trump and lawmakers over funding for the border wall, which the CBO approved for costs. Analyzed.
It was estimated that the partial shutdown caused an $18 billion delay in federal spending and an $8 billion reduction in GDP in the first quarter of 2019. Most of that shortfall was made up when the government reopened, but furloughs of federal employees, delays in federal spending, and reduced aggregate demand left a permanent $3 billion loss.
The report’s authors also note that “the estimates do not include other, more indirect negative impacts of the shutdown, which are more difficult to measure but were likely becoming more significant as it continued.”
Those costs came despite a blockage that was considered a “partial” shutdown because Congress enacted five of its 12 appropriations bills that year without any drama.
This year, Congress has not been able to agree on a single area of appropriations, raising the possibility of a complete shutdown this time with broader costs.
A New Risk: Credit Ratings
Apart from the direct economic costs, observers also see a new economic threat, this time from the world of credit ratings.
In August, Fitch downgraded the US government’s top credit rating and cited government dysfunction as a major reason for doing so. The move made it the second major agency to downgrade the US after S&P did so in 2011.
A nod to Fitch Ratings in New York. (Henny Ray Abrams/AP Photo, File)
Moody’s is the last major agency to give US Treasuries a clean AAA rating, but Janet Lowe, managing director of policy research at Strategus Securities, says it could be at risk.
“One thing we’re seeing with this current shutdown is that Moody’s will potentially put the U.S. on credit rating watch during the shutdown,” he said in a recent Yahoo Finance appearance. “An important event for the financial markets in our view.”
Even if a downgrade doesn’t happen, Fitch and others worried about US dysfunction will “get more ammunition for that argument” in the coming weeks, says Greg Valliere, chief US policy strategist at AGF Investments.
At present, the likelihood of a prolonged standoff is increasing based on new aggressive statements made this week. Even Speaker McCarthy’s agreement with his right wing on Tuesday to launch an impeachment inquiry did not ease pressure for a shutdown.
More and more people are expecting this to be a long affair. “This has all the ingredients for a protracted conflict,” says Gordon Gray of the American Action Forum.
He then added another sour note, noting how some shutdowns have ended with improvements in America’s financial situation.
“it’s expensive [and] What will we get in return? Nothing,” he says wryly, “past episodes of shutdown have produced a revitalized republic.”
Ben Vershkul is the Washington correspondent for Yahoo Finance.
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