As mentioned in previous posts, the American government is facing huge problems. First, there is the increasing national debt ($16.7 trillion USD) which is now more then America's GDP ($15.7 trillion USD). Next, there is Bernanke's aggressive Quantitive Easing program tapering, which will slow the economy's growth, and possibly increase the unemployment rate. Lastly, and most importantly, there is the Fiscal Policy lockdown issue.
The American Government's 2012-2013 Fiscal Year is supposed to end at midnight on September 30th, 2013. The 2013-2014 Fiscal Year is supposed to start 12:01AM on October 1st, 2013. It is currently 5PM on September 30th (out of 30 days), and Congress has still not adopted/approved a 2013-2014 Fiscal Year plan. In less then 7 hours, the new Fiscal Year will begin, and the government will not have the money to pay for its expenses, because it has not come up with a plan.
The only good thing that comes out of this government shut down is the possibility that I have no school tomorrow. Edit: I still have school tomorrow. Princeton High School, and most public schools receive a majority of their funding from the state and local government, so the Federal government shutting down will have no immediate effect. The same applies for state funded institutions/colleges, they will not feel the immediate effect of a Federal government shut down, but they will feel it in the long term.
The Reason for the shut-down: The House Republicans are not willing to sign/agree to any budget plan unless it includes a delay or defunding of ObamaCare. Obviously, the Democrats are not okay with that; they are firm believers of ObamaCare. In a previous post, I talked about why Republicans didn't like ObamaCare. The Republicans, who have a majority in the House of Representatives, recently passed two Amendments to the Senate regarding delaying ObamaCare funding/decisions until next year. The Democrat controlled Senate tabled those Amendments, causing both Houses to go back to Square 1.
ObamaCare attempts to make Health Care affordable for everyone, and guarantee everyone health care from the American Federal Government, regardless of illness, prior condition, and wealth. Perspicuously, this is a massive spending plan for a government that is already laden with debt. The American government owes more then $16.8 trillion, and its GDP is only $15.7 trillion. The government owes more money then it trades/makes in a year, so approving a plan that increases its spending is a bad idea.
If the government continues to spend more money, ie. with ObamaCare, it will have no choice but to raise taxes and the cost of health care for the wealthy and healthy in order to negate some of those costs. Combine that with a still weak economy, and an unemployment rate of over 7% (healthy is 2-5%), and our government is in trouble. Then, on top of that, there is fear of the economy recessing because Bernanke plans to begin tapering off his Quantitive Easing program in a couple months, which will cause an increase in interest rates. Bernanke's aggressive QE program calls for the Federal Reserve to buy $85 billion in US Treasuries and US Bonds every month, in order to keep interest rates low. Low interest rates encourage businesses to borrow money, and expand their business, through the hiring of new workers, and the creation of new stores/products. Low interest rates also encourage consumers to borrow more money so that they can spend more money, fueling the economy. Low interest rates encourage consumers and businesses to borrow money, because it is cheaper to borrow. If the interest rates rise too soon, people might not spend as much as they used to spend, because now it is more expensive to borrow. If people don't spend as much, companies don't make as much revenue, and have to reduce their costs by firing workers in order to remain profitable. As a result, the unemployment rate rises, the dependence on federal aid increases (Unemployment Benefits, Food Stamps), and the number of people who pay taxes decreases.
Stocks have been on a steady decrease for the past week and a half due to fears of the government shut down. The Dow, S&P 500, and Nasdaq have erased most of their gains from the previous month of trading.
Goldman Sachs argues that the government shut down might be a good thing. The American government is scheduled to hit its debt ceiling (again, last time it hit debt ceiling was last year) in a few weeks, and Goldman feels this shut down will be like a wake up call to Congress to begin working on increasing the debt ceiling now, a few weeks before the government is expected to hit it. Maybe Congress will pass a 2013-2014 Fiscal Year plan, and a debt ceiling extension at the same time. Goldman also sees that the Republican party will be more likely to act now, because if the government shuts down, and a poll goes out, "everyone knows the GOP will be blamed". This also allows some interpretation, since Republicans in Congress refuse to pass any fiscal bill that does not include defunding ObamaCare, and when the government shuts down, it will make the Republican party look bad. Senatorial elections are coming up soon, and this would be a big gain for the Democratic party, because everyone would blame the Republicans for the federal government shut-down. Lastly, Goldman believes the government shut down might be a good wake up call to all the politicians and voters. It will wake the politicians up and encourage them to actually get some work done, and it might make voters choose better politicians.
Recent polls of the American government show that many Americans have little to no faith in Congress. The polls showed the same results last year, when Congress did not pass anything to lower the pre-Bush tax levels, until 3 hours before the new, higher taxes were supposed to go into effect(8PM on Dec. 31, 2012).
The biggest issue with the American government shut down would be the decrease in GDP. Economists and analysts estimate that for every week the government is shut down, the American GDP decreases by more then 0.16 points.
There is no further analysis that can really be made on this situation. The result just comes down to a matter of principles. Should all Americans have access to health insurance and health care so that no American dies because they can't afford/access treatment? Or should the government just focus on decreasing the unemployment rate so that people can actually have jobs to help pay for their medical care?
Moving back to the debt ceiling, there is less chance of America hitting the debt ceiling, because President Obama can give an Executive Order to increase the debt ceiling, since default would be imminent. The Executive Order ability comes from former President Bill Clinton who used it during his Presidency. Clinton stated just last year that Obama would (and should) raise the debt ceiling by invoking the 14th Amendment (with the Executive Order) rather then dealing with House Republicans. Potomac Research believes that Obama will probably use the Executive Order closer to the debt ceiling date, and face Supreme Court hearings about his Order, rather then deal with House Republicans.
In unrelated news, Iran has begun talking with American diplomats/officials about possibly lifting America's sanction on Iranian oil. Iran's economy is primarily based upon the export of oil. The US began sanctioning Iranian oil and other Iranian products because they suspected Iran was trying to build its own nuclear weapons, which would threaten America's safety. Other countries followed America's sanctions, and soon Iran was barely exporting any oil. If the sanctions are lifted on Iranian oil, there will be a sudden influx of a supply of oil, which would cause oil prices everywhere to drop.
The American Government's 2012-2013 Fiscal Year is supposed to end at midnight on September 30th, 2013. The 2013-2014 Fiscal Year is supposed to start 12:01AM on October 1st, 2013. It is currently 5PM on September 30th (out of 30 days), and Congress has still not adopted/approved a 2013-2014 Fiscal Year plan. In less then 7 hours, the new Fiscal Year will begin, and the government will not have the money to pay for its expenses, because it has not come up with a plan.
The only good thing that comes out of this government shut down is the possibility that I have no school tomorrow. Edit: I still have school tomorrow. Princeton High School, and most public schools receive a majority of their funding from the state and local government, so the Federal government shutting down will have no immediate effect. The same applies for state funded institutions/colleges, they will not feel the immediate effect of a Federal government shut down, but they will feel it in the long term.
The Reason for the shut-down: The House Republicans are not willing to sign/agree to any budget plan unless it includes a delay or defunding of ObamaCare. Obviously, the Democrats are not okay with that; they are firm believers of ObamaCare. In a previous post, I talked about why Republicans didn't like ObamaCare. The Republicans, who have a majority in the House of Representatives, recently passed two Amendments to the Senate regarding delaying ObamaCare funding/decisions until next year. The Democrat controlled Senate tabled those Amendments, causing both Houses to go back to Square 1.
ObamaCare attempts to make Health Care affordable for everyone, and guarantee everyone health care from the American Federal Government, regardless of illness, prior condition, and wealth. Perspicuously, this is a massive spending plan for a government that is already laden with debt. The American government owes more then $16.8 trillion, and its GDP is only $15.7 trillion. The government owes more money then it trades/makes in a year, so approving a plan that increases its spending is a bad idea.
If the government continues to spend more money, ie. with ObamaCare, it will have no choice but to raise taxes and the cost of health care for the wealthy and healthy in order to negate some of those costs. Combine that with a still weak economy, and an unemployment rate of over 7% (healthy is 2-5%), and our government is in trouble. Then, on top of that, there is fear of the economy recessing because Bernanke plans to begin tapering off his Quantitive Easing program in a couple months, which will cause an increase in interest rates. Bernanke's aggressive QE program calls for the Federal Reserve to buy $85 billion in US Treasuries and US Bonds every month, in order to keep interest rates low. Low interest rates encourage businesses to borrow money, and expand their business, through the hiring of new workers, and the creation of new stores/products. Low interest rates also encourage consumers to borrow more money so that they can spend more money, fueling the economy. Low interest rates encourage consumers and businesses to borrow money, because it is cheaper to borrow. If the interest rates rise too soon, people might not spend as much as they used to spend, because now it is more expensive to borrow. If people don't spend as much, companies don't make as much revenue, and have to reduce their costs by firing workers in order to remain profitable. As a result, the unemployment rate rises, the dependence on federal aid increases (Unemployment Benefits, Food Stamps), and the number of people who pay taxes decreases.
Stocks have been on a steady decrease for the past week and a half due to fears of the government shut down. The Dow, S&P 500, and Nasdaq have erased most of their gains from the previous month of trading.
Goldman Sachs argues that the government shut down might be a good thing. The American government is scheduled to hit its debt ceiling (again, last time it hit debt ceiling was last year) in a few weeks, and Goldman feels this shut down will be like a wake up call to Congress to begin working on increasing the debt ceiling now, a few weeks before the government is expected to hit it. Maybe Congress will pass a 2013-2014 Fiscal Year plan, and a debt ceiling extension at the same time. Goldman also sees that the Republican party will be more likely to act now, because if the government shuts down, and a poll goes out, "everyone knows the GOP will be blamed". This also allows some interpretation, since Republicans in Congress refuse to pass any fiscal bill that does not include defunding ObamaCare, and when the government shuts down, it will make the Republican party look bad. Senatorial elections are coming up soon, and this would be a big gain for the Democratic party, because everyone would blame the Republicans for the federal government shut-down. Lastly, Goldman believes the government shut down might be a good wake up call to all the politicians and voters. It will wake the politicians up and encourage them to actually get some work done, and it might make voters choose better politicians.
Recent polls of the American government show that many Americans have little to no faith in Congress. The polls showed the same results last year, when Congress did not pass anything to lower the pre-Bush tax levels, until 3 hours before the new, higher taxes were supposed to go into effect(8PM on Dec. 31, 2012).
The biggest issue with the American government shut down would be the decrease in GDP. Economists and analysts estimate that for every week the government is shut down, the American GDP decreases by more then 0.16 points.
There is no further analysis that can really be made on this situation. The result just comes down to a matter of principles. Should all Americans have access to health insurance and health care so that no American dies because they can't afford/access treatment? Or should the government just focus on decreasing the unemployment rate so that people can actually have jobs to help pay for their medical care?
Moving back to the debt ceiling, there is less chance of America hitting the debt ceiling, because President Obama can give an Executive Order to increase the debt ceiling, since default would be imminent. The Executive Order ability comes from former President Bill Clinton who used it during his Presidency. Clinton stated just last year that Obama would (and should) raise the debt ceiling by invoking the 14th Amendment (with the Executive Order) rather then dealing with House Republicans. Potomac Research believes that Obama will probably use the Executive Order closer to the debt ceiling date, and face Supreme Court hearings about his Order, rather then deal with House Republicans.
In unrelated news, Iran has begun talking with American diplomats/officials about possibly lifting America's sanction on Iranian oil. Iran's economy is primarily based upon the export of oil. The US began sanctioning Iranian oil and other Iranian products because they suspected Iran was trying to build its own nuclear weapons, which would threaten America's safety. Other countries followed America's sanctions, and soon Iran was barely exporting any oil. If the sanctions are lifted on Iranian oil, there will be a sudden influx of a supply of oil, which would cause oil prices everywhere to drop.
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