Economic impact of government shutdown

shutdownThe current government shutdown is creating economic stress that has both short- and long-term consequences, says a Virginia Tech professor.

“The shutdown is causing an economic contraction in a variety of ways,” said Professor Mike Ellerbrock. “In the short-term, people are hurting right now to buy groceries, gasoline, things like that. And while Federal workers may be guaranteed back pay, that doesn’t mean that all the government-contracting industries are going to get their lost contracts back. That’s a potentially very large indirect effect. Plus, there’s a large indirect effect of uncertainty. Wall Street does not like uncertainty, in general, and historically. Personally, I’ve seen one of my retirement accounts drop by 10% and I’m not a federal employee.”

Ellerbrock also warns that the shutdown could have widespread impacts.

“If this continues, it will probably further erode a lot of people’s confidence in federal government. That will have long-term consequences, including globally. Credit markets around the world have become ever more cautious about investing in the U.S. Plus the trade war with China and increased tariffs – those shocks to the system hurt global confidence in the U.S. dollar and U.S. foreign policies.”

Ultimately, Ellerbrock suggests that the solution is more political and ethical stability.


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