Re: Breaking News: House Republicans Voting Tonight to force a Government Shutdown
posted at 9/28/2013 8:11 PM EDT
The best guides to what might happen are the government shutdowns of 1995-1996, said Chad Stone, chief economist of the Center on Budget and Policy Priorities.
The 1995-1996 government shutdowns, a five-day hiatus in November 1995, followed by a 28-day gap in December and January 1996, did interrupt the strong expansion that was then developing.
The economy grew at an annual pace of 3.5% in the third quarter of 1995, but dropped to 2.9% in late 1995 and 2.6% in the first quarter of 1996. Once the shutdown ended, growth rebounded to 7.2% in the second quarter of 1996, and the economy grew at a 4% clip in the second half of the year.
During the crisis, interest rates on 10-year Treasury bonds dropped, and the Standard & Poor's 500-stock index rose 5.5%. Unemployment stayed stable, 5.5% or 5.6% from September through January.
The impact of a failure to raise the debt ceiling could be much greater, because of the way it would rock credit markets, said Doug Holtz-Eakin, a former head of the Congressional Budget Office.
It would also force much more sudden spending cuts than a partial shutdown if the Treasury is forced to go from a $600 billion annual deficit to balancing income and payments immediately, Stone said.
"It's sequestration on steroids, a balanced budget amendment enforced on an hourly basis,'' he said.