Individual Stocks

Understanding Financial Markets

What effect did the 2013 government shutdown have on the U.S. economy?

The shutdown of the federal government—while the U.S. Congress tried to decide how much money to fund the federal government in October 2013, according to experts interviewed by National Public Radio—did unnecessary damage to both the U.S. economy and the country’s reputation abroad. Standard & Poor’s asserted that the disruption caused the loss of approximately $24 billion from the economy, representing more than half a percentage point of growth in the final three months of the year. And according to S&P’s chief U.S. economist, since the agreement only kept the government funded until mid-January 2014, hundreds of thousands of federal workers had uncertainty, affecting non-government workers as well. Many businesses decided to delay hiring and investment. The bond market was affected as well, as interest rates on very short-term U.S. Treasuries went from near zero to almost half a percent when investors realized investments in short-term U.S. bonds were no longer risk-free. The U.S. government had to pay higher interest rates to service its debt. For every tenth of a percentage point increase in interest rates, the United States must pay $2 billion more per year in interest in order to service its debt.


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