10/1/2013 4:30 PM ET|
Shutdown cost: $40 million-$80 million a day
After a bruising half decade of crawling back from recession, it’s unclear just how bad the shutdown would be for the economy.
The adverse economic impact of a U.S. government shutdown was apparent in Europe as early as Monday, as major European indexes traded lower because of the impending government shutdown in the U.S. and chaos in the Italian parliament.
House Republicans sent a government spending bill to the Senate that would delay Obamacare for a year, which the Senate would not pass.
So starting Tuesday, the federal government has not been open for business, leaving approximately 800,000 federal employees on furlough, except for the military and essential services like Medicare. This is the first time in 17 years the government has closed, and the 17th since 1976.
Estimates on the economic impacts of the shutdown vary from $40 to $80 million a day, but share one similar prognostication: a government shutdown is bad for the economy. After a bruising half decade of crawling back from recession, it's unclear just how bad it will be.
Morgan Stanley's Vincent Reinhart and Ellen Zentner estimated the shutdown would have a direct impact on gross domestic product growth.
"Compensation of non-defense employees and civilian defense employees makes up about one-fifth of real federal spending and about 1.5% of GDP. Eliminate a third of that in a shutdown as non-exempt workers stay home, and GDP is haircut 0.5%. Annualized, this reduces quarterly GDP growth by around 0.15 percentage points per week of shutdown," they wrote in an analysis of the shutdown.
Meanwhile, Mark Zandi of Moody's Analytics believes that a shutdown lasting three to four weeks would cut growth by 1.4 points. Without a shutdown, Zandi predicts that the economy would grow by 2.5% for the year. A prolonged shutdown would slide that growth to 2.3%.
According to the Congressional Research Service, the last government in 1995 and early 1996 shutdown, which lasted 26 days, removed $1.4 billion from the economy ($2.1 billion in today's dollars). Federal government contractors were hit especially hard, CRS found.
"Of $18 billion in Washington, DC, area contracts, $3.7 billion (over 20%) reportedly were affected adversely by the funding lapse," CRS found in an August 2013 report.
The OMB estimated that the 27-day 1995-96 shutdown cost a total of $1.4 billion, or about $2 billion in today's dollars. Some of the lost revenue in fees and fines would eventually be recouped, according to MSNBC. Divide $2 billion by 27 and you get about $74 million a day.
One of the reasons it is so hard to predict how the shutdown will hurt today's economy is that no one knows how long it will last. CRS found, for instance, that the federal courts would be able to operate for 10 days. After that, they would have to close. Other agencies are in similar positions.
But most federal employees would take a temporary hit. Only employees that provide an essential service will continue to work. According to an estimate by USA Today, about 41% of non-defense federal workers would be furloughed. The remaining 59% would continue to work.
They will eventually be paid when the shutdown ends. Congress could act to restore the pay for the time they missed, as it has in the past.
The same process affects the 1.4-million active-duty soldiers who will continue to show up for work each morning, but they won't be paid until the shutdown ends.
Mixed bag on stocks
The stock market could take a deep dive in the event of a long shutdown. Markets haven't taken a big hit yet, though, and stocks have not typically taken huge dips during past shutdowns.
According to the Associated Press, the S&P 500 index ($INX) dropped an average of 2.5% during past shutdowns that lasted 10 days or more. Shutdowns shorter than five days or less caused a 1.4% S&P decline. Surprisingly, during the 1995-1996 shutdown, the S&P actually rose 3%.
"If they shut the government down for two days, the world's not going to stop revolving," Ron Florance, deputy chief investment officer for Wells Fargo Private Bank, told the AP.
More from The Fiscal Times
VIDEO ON MSN MONEY
Shut Down Cost $ 40 -80 Million per day
Keeping the government out of our Lives - $$ Priceless $$ !
only the federal government could lay off 700,000 employees and predict an increased cost. Most of those people have not felt the recession .. so a few weeks won't hurt any more than the rest of us have. I vote for a reduction in my federal taxes for every day they are shut down ... aren't we paying for services not being performed ? .. speaking of which .. have we cut off the payroll of the house and senate ?
10/2 ..for those that think I wish bad on federal employees .. I meant that most federal jobs have been protected during the recession and have not seen layoffs, job cuts etc .. and I'd bet when this is finally over .. they wind up being paid for their time setting at home. I would much rather the Senate and Congress .. both parties .. and President Obama give their pay toward the deficit during the shutdown ... since I know their checks are still flowing.
So this means that Egypt and Pakistan wont be getting their billion dollar checks for awhile?
.....99% of us with see ZERO affect on our daily lives due to the shut-down.................
obama tried to make the sequester look like a "total meltdown"....but it turned out to be a yawner!!
Same with the gov't shut-down - but this way 800,000 gov't employees who are classified as "non essentials" will save us taxpayers $240,000,000 per day in payroll.
obama is so pathetic - he actually wants the shut-down to be worse than it really is. He wants Americans to suffer just to feed his ego along with his dumbocratic party.
obama - worst president in US history!!
On the other hand I feel strongly that the government should be shut down. The dysfunction that is taking place in Washington DC angers me greatly. I want to point out that the Affordable Care Act (ACA/Obamacare) was passed on lies and damned lies. I won't go into specifics but many of the promises made in regards to the ACA have turned out to be untrue. Even with these untrue promises, half the country didn't want this law in the first place.
In the last several months it has become clearer that things just aren't as they seem in regards to the ACA and due to that fact Obama has unilaterally made many changes to the law. He has delayed the employer mandate, and modified contributions for members of congress and their staffers and many others. This is a law that passed both legislative chambers and was signed by the president and upheld by the Supreme Court. The Executive does not have within his power the legal capacity to simply ignore, postpone, or change laws. He can propose things and ask congress to make changes, but any changes must pass both houses and be signed into law by the president. Not only has the President made a myriad of changes to the law (which is beyond his constitutional power) he has provided exemptions from Obamacare for corporations (Waffle House, Pepsi, Dish Network, Cracker Barrel to name a few), unions (Local 802 Musicians Health Fund [wtf], SEIU), non-profits (several Catholic Diocese, The Pew Charitable Trusts), local municipalities (McGregor Schools ISD #4, the town of Albion N.Y. and many, many other groups.
The President himself has already made changes to Obamacare because that s is f'ed up. Here we are trying to pass a Continuing Resolution to keep the doors open for our government, and the Republicans in the House are trying to make some changes to benefit all the great people of this country and the Democrats (including the President) refuse to negotiate. The House sent a bill to defund Obamacare which was rejected by the Senate (Obama said he would veto), then sent a bill to delay the individual mandate and repeal the medical device tax (2.3% tax on PROFITS, tax on profits is out of the ordinary), rejected by the Senate (Obama said he would veto), then sent a bill to delay the individual mandate for a year and remove the posh federal contributions for lawmakers and their staff, which was also rejected by the Senate (Obama said he would veto). The Republicans have repeatedly revised their requests to which the Democrats (And Obama) say we won’t negotiate with (Tea Party) “terrorists”. They just sit back and point their fingers at Republicans for causing this mess that we are in.
I would like to point out that Obama *is* negotiating with Iran. Iran, with an extremist regime in charge, hell bent on creating nuclear weapons, and who contributes to terrorists (training/supplies/etc) across the globe. These are the people that Obama is willing to negotiate with, but not Republicans who are trying to protect the people from a broken law built on lies.
Shut it down, I don’t care anymore.
The first time in 17 years?
The 17th time since 1976?
That's 37 years ago this crap started.
VOTE SMARTER in 2016
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