Those of you who bothered to watch the news Monday night will have seen the growing news channel coverage of the impending Government shutdown. Now a disclaimer right now, this has been written BEFORE that particular deadline. So if they managed to sort it and I’m asleep, I shall post an update correcting whatever is wrong!
So what is a shutdown? Well, in America, because of how against the two sides of the house are, they have not been able to agree to a motion to keep various parts of publicly funded life going, like attractions, public sector workers etc. It’s a bit like our Government failing to be able to fund the NHS staff’s wages.
Whilst a shutdown in America of non-essential services would be a major inconvenience over there, it won’t really have any sort of impact here. But what will, and is the overall thought of this post, is what in coming in 17 days time.
The US is still miles away from agreeing to raise the debt ceiling. At the moment it is at an ball-crunching, eye-watering, $16.7tn. How any Government can allow any debt of that size is beyond me. But what is worse is what could happen if they allow the 17th October deadline to pass without agreeing to raise the debt limit further.
So what will happen if they don’t raise the debt ceiling? Well, the US Government currently has to borrow a lot of money in order to service it’s debt. But on that date, the money they borrow currently won’t be enough to cover what they owe, hence, defaulting. Because of the amount of exposure the world’s banks, including ours, has to American debt, the effects could be Lehman-like. And we all know how bad that was.
Most financial experts predict a very swift return to recession. That would be heartbreaking news for everyone just as the world starts to get back on it’s feet. Last time something like this happened, the banks were paralysed. We all thought the worst if Greece was allowed to default on it’s debt. Imagine the effect an American default would have.
However, it is still pretty unlikely that the US Government would allow such a catastrophic thing to happen. They would derail their own economy which surely they could not allow.
Still, given the Republican/Democrat divides seen with the shutdown crisis, it doesn’t bode well for any future agreements.
Sorry for seeming so fantastical with this post. Over the last few years I have saved hard and worked my arse to get into a position where financially me and my better half can move out together and start our lives. But with the risks that a global economy brings, it is stories like this that bring a real possibility of a massive spanner in the works!