US Debt Crisis Puts World Economy in Peril as Shutdown Continues

Bernadine Racoma

October 4, 2013

While the world is currently focused on the ongoing government shutdown in the United States, a worse financial scenario that can affect the entire world looms if the US debt crisis continues. What is being overlooked here, according to Christine Lagarde, International Monetary Fund managing director, is the impact of the unsolved debt problem of the country. She acknowledges that people seem to be much concerned about the effect of the current deadlock on government operation and the lives of people but they do not see the more serious problem in the background.

Political conflict as main cause

The federal government shutdown has placed President Barack Obama and Congress in a standoff position over decisions on the budget appropriations for the 2014 fiscal year. The core of the problem, according to Obama, is not really on the ideological differences regarding the spending of the government but on the preoccupation of the Republicans to take apart the Patient Protection and Affordable Care Act known as Obamacare. The House remains divided in their stand over the Act as the House of Representatives headed by Republican John Boehner and the Senate led by Democrat Harry Reid battle on the issue about the delaying measures set by the Republicans on the Obama’s health care program.

Raise in debt ceiling affected by shutdown

The IMF warns that if the federal government deadlock continues, the US debt crisis might plummet deeper since an agreement to increase the borrowing limit of the government may not be reached. Worse, the government will be short of cash to pay bills if the credit ceiling will not be raised. With nonpayment of debt, a financial crisis which can be worse than the one that took place in 2008 could happen.
In his message to Congress, Obama said: “As reckless as a government shutdown is, as many people as are being hurt by a government shutdown, an economic shutdown that results from default would be dramatically worse.” Obama further implored House of Representatives Speaker John Boehner to call the House to act and vote for the budget bill to end the shutdown before more damage to the economy is done.

Government agencies on standstill, furloughed workers suffering

The present shutdown has frozen the operations of non-exempt government agencies. Workers are furloughed, not receiving salaries until proper allocations are made. With just one week of operation deadlock, the United States will be losing over $10 billion. IMF officials warn that if there is anyone who directly suffers from the failure of the legislators to pass the budget bill – it is the people. Some 800,000 government employees may not be paid right away and this has a direct bearing on the whole economy of the nation. There are emergency funds for major government organizations while other agencies like the United States Postal Service have funds of their own but an immense amount of support and services to a number of government bureaus are not in good shape.

The existing deadlock is predicted to last up to the second week of October during which time Obama and Congress are expected to finally meet minds to address the issue on debt ceiling increase to prevent default and financial downfall not only of US but the entire world as well.