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Consequences of Government Shutdown: An Illustrated Guide in 13 Words or Less

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Consequences of Government Shutdown: An Illustrated Guide in 13 Words or Less

The article discusses the potential impact of a government shutdown on Americans. A government shutdown occurs when Congress fails to approve funding for the federal government before the start of the new fiscal year on October 1. If this happens, many government operations may grind to a halt until Congress takes action, although essential functions will continue. Federal agencies develop contingency plans to determine which functions will continue and how many employees will be furloughed. The article also highlights the financial challenges faced by federal employees and contractors during a shutdown, as well as the wider economic consequences, such as raising the unemployment rate and lowering GDP growth.

During a government shutdown, federal employees and military service members may not receive pay until it ends. Essential employees, such as those in services that protect public safety or national security, continue working, while non-essential employees are furloughed. Both groups must find ways to stretch their finances until back pay arrives. Government contractors, who provide services to federal agencies, are even worse off as they have no guarantee of receiving back pay. A shutdown can have significant economic consequences, including raising the unemployment rate, lowering GDP growth, and raising the cost of borrowing. According to estimates, each week of a shutdown could cost the US economy $6 billion and shave GDP growth by 0.1 percentage points.

Moreover, a government shutdown also has wide-ranging effects on various sectors. Small businesses may be impacted as government loan programs are paused, and new business activities may stall due to the Securities and Exchange Commission’s limited staffing. The shutdown can also hinder the state of the US economy as key data, such as figures on inflation and unemployment, may not be released by the Bureau of Labor Statistics. This poses challenges for the Federal Reserve and investors in interpreting the economy and making crucial decisions. Overall, a government shutdown disrupts day-to-day life for many Americans and has significant economic repercussions at both individual and national levels.

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