This is the first time since 17 years the US government slips into a partial shutdown. Basically the US is left out without a spending plan for the 2014 fiscal year that begins on Tuesday. The congress has failed to reach a consensus about the new health care law among other things. The last time it happened was during 1995-1996. It shook the US economy but the economy bounced back rather quickly. But times were different then and the situation was pretty strong as compared to today.
What we are struck with is a fragile economy across most of the major countries. A shutdown such as this shows a hint of immaturity at a time of weak economy and can have a far reaching consequences across the globe. It is going to slow things down in a major way and will negatively affect the Consumers confidence which would have an impact on their spending. The overall economic growth rate would slowdown too and the longer it prevails, more the impact.
The last time this happened, it lasted for 21 days. Markets lost about 4-5 percent. But the job growth was stronger then. The technology companies were riding high and employed more number of baby boomers. People were happy though they did feel the impact a bit. A large percentage of those who were employed by then, had not planned their retirement. The tech industry and the growing automobile industry contributed to the economy and helped it revive faster than expected. During the recovery back then, the stock responded by soaring about 10 percentage. But now, tables have turned. The economy is sluggish and shows very little signs of recovery. The major powers of the world is reeling under debt and have failed to make significant improvement. A shutdown at this juncture would be catastrophic for the economy. Many of the Asian and African economies is directly or indirectly related to US economy. If things slow down here, it could have far reaching impact on many of the Asian markets. This would lead to a chain reaction and several economies are going to crash down – if this shutdown lasts any longer.
Several employees, who were asked to go on an indefinite and unpaid leave, were a lot confused. They do not know if they need to report to work on Tuesday and also what the future holds for them. This would automatically curb their spending which would further stress the economy which would be bad at this stage. If they decide to work elsewhere leaving their present jobs, then many essential government services would be affected. Hope the government takes measures to restore essential services irrespective of the shutdown.
This time, the road to recovery would seem much longer than expected. Of course, there is a chance that the economy gains heat and there is a chance that the job market improves following the recovery. But again these are just speculations. There is a growing fear that the government is working with no specific plans for the long term. USA is loosing sheen by actions such as this. What the government needs is a dose of patriotism, will power and intelligence.