Top House Republican leaders have rejected the short-term spending plan expected to be passed by the Senate in coming days — increasing the possibility of a government shutdown next week. But that's not the only problem we're facing. The nation is also set to hit the debt ceiling come mid-October. Which is the worst-case scenario?
Dr. Dan Seiver, a finance expert at San Diego State University talked about both scenarios with Morning Edition host Deb Welsh.
Dr. Dan Seiver: Neither one is desirable. Either scenario is — I think — bad in both the short run and the long run.
Deb Welsh: Well, if it comes to a government shutdown what would that mean for the U.S. economy exactly?
Seiver: That will weaken the economy in the short run. But I'm much more concerned about the long run impact, which is that it damages the international credibility and the international credit standing of the United States.
You can argue that the later one, that when we run out of funds because of the debt ceiling, that’s even worse. In the worst-case scenario we could default in our international debts. That’s almost unthinkable. And the long run effect on the U.S. in doing that would be very, very bad.
Welsh: What would happen exactly if that were to happen?
Seiver: Well it’s hard to imagine. You know I sort of feel like Woody Allen on this. I'm not afraid of it. That’s what he said about death — 'I’m not afraid of it, I just don’t want to be there when it happens.' So I don’t want to be there when it happens.
But it would likely lead to tremendous turmoil in the financial markets. And even if it were resolved quickly it would further damage the U.S. credit rating, which would mean we’d have to pay more to borrow money. So we still are running deficit. And that would directly cost the U.S. economy and all the U.S. taxpayers. Who would have to pay more interest. We’d be paying more interest because we wouldn’t have as good a credit rating. Just like what happens with an individual.
According to the congressional research service, two previous shutdowns — one in 1995 and the other in 1996 — cost the country more than one billion dollars.
