From shutdown to default

I remember the government shutdown of 1995 and the huge uproar it caused among the general public.  I don’t notice much of  that happening today.  The shutdown is not much of a shutdown, with over 80% of the government continuing as usual and the non-esssential offices, while closed, are, well, not essential.

The much bigger issue comes in 10 days when the government reaches the debt ceiling and will have to default on what it owes if Congress doesn’t approve the borrowing of more money.  How do you think that will turn out?  How should it turn out?  After the jump, China and Japan are threatening not to bankroll us anymore if we default.

From China and Japan warn US on default – FT.com:

China and Japan ratcheted up pressure on the US to avoid an unprecedented US default on its debt as Democrats and Republicans continued their stand-off over the budget in the second week of a US government shutdown.

Two senior White House economic officials said on Monday that President Barack Obama would not back down from his refusal to negotiate with Republicans in Congress, increasing worries that the debt ceiling limit would be reached on October 17 without an agreement, raising the threat of a default.

Global markets were jittery over the latest signs of a stalemate, with the S&P 500 dropping more than 9 points, the FTSE All-World equity index down around 0.5 per cent and the Dow falling by more than 0.6 per cent.

In its first official reaction to the US political stalemate over the budget and looming debt ceiling deadline later this month, Beijing said “the clock is ticking” and urged politicians in Washington to “ensure the safety of the Chinese investments”.

Zhu Guangyao, vice-finance minister, told a media briefing that China has made clear its unease over the political impasse in Washington. In Japan, the Ministry of Finance is very worried about the potential impact on currency markets, according to a senior official. A US default could cause investors to dump the US dollar, which would sharply push up the value of the yen.

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.


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