Would a government shutdown derail the economic recovery?

Republicans and Democrats still haven't broken a stalemate threatening to bring the federal government to a halt at week's end. Is the economy in for a big hit?

House Speaker John Boehner (R-Ohio) described discussions with Obama and Sen. Harry Reid (D-Nev.) as "honest" but still failed to strike a budgetary compromise.
(Image credit: Getty)

President Obama and congressional leaders failed to strike a budget deal Wednesday night that would keep the federal government running. If they don't break the stalemate by week's end, many government services will come to a halt. Obama said it would be "inexcusable" for Republicans and Democrats to reject a compromise, because a prolonged shutdown would be devastating to ordinary Americans (not to mention the country's army of federal workers.) Just how bad would it be for the economy?

This will crush the recovery: A shutdown is the anti-stimulus, says Dave Johnson at The Huffington Post. If it happens, 800,000 federal workers will be laid off, hurting every business where those staffers spend money. Companies that depend on government contracts will start running out of money if the government stays dark for a few weeks. Tourism will dry up around national parks. If this drags on, a shutdown could ruin the already fragile recovery, and even "trigger a second-dip recession."

"Republican shutdown shuts down the economy — so do the cuts they demand"

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Letting Obama's reckless spending continue would be worse: No matter how painful this will be, says Investor's Business Daily in an editorial, Republicans are right to stand firm on the spending cuts they're demanding. Obama is accusing them of being "childish," but he's the one refusing to act like a grown-up. The president's "reality-defying" budget for the next decade would "add a devastating $10 trillion to our nation's debt." If the GOP doesn't "stop this fiscal folly," the nation's economic problems will only get worse.

"On budget, the children scold the adults"

Washington gridlock could actually boost stocks: If a shutdown will sink the economy, says Stephen Gandel at TIME, somebody forgot to tell Wall Street. Stocks have been buoyed by the increasing likelihood of a shutdown. The shutdowns in 1995 and 1996 did nothing to hinder that era's bull market, in part because shutting off the lights in Washington does "little to impact corporate profits." And this could actually boost consumer confidence, because after the government shuts down and the economy doesn't collapse, people will see "the economic recovery is here to stay."

"Would a government shutdown boost the market?"

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