How expensive was the 16-day partial shutdown of the U.S.
government? According to ratings agency
Standard & Poor’s, it may have cost the economy a staggering $24
billion.
Millions of government workers were laid off without pay
during those two weeks, and many contractors with government ties were hit as
well. During that period of uncertainty
these households made significant cutbacks in discretionary purchases which
created a ripple effect felt by many smaller businesses, particularly in the
service sector. There were reports of
some businesses which relied heavily on government contract work laying off
workers or going out of business entirely.
It would be a mistake to over-blow the effects of the
shutdown, but to minimize its impact would be equally foolish. The shutdown had definite repercussions for
many workers, some of which are still being felt. The fear and uncertainty the shutdown
generated was, while detrimental to the economy, beneficial to gold and
silver. Metals and mining stock prices
have risen in the wake of the shutdown as investors turn their collective
attention once again to the traditional safe havens. It’s clear that investors remain uncertain about
the future as can be seen in the price of gold (below), which one analyst has
called the “price of fear.”
While many pundits tried to underplay the economic impact of
the shutdown, there’s no denying it did more harm than good to the
economy. It can also be viewed as
symptomatic of a much bigger problem in Washington, namely a continuing trend
toward economic obstructionism in the name of party politics. This trend is itself a microcosm of the much
larger trend of fiscal austerity which Washington has firmly embraced in recent
years.
Politicians and bureaucrats are reactionary by nature, so we
can automatically classify the austerity mindset as a reaction to the economic
pain caused by the 2007-2009 financial panic and recession. This momentous event left a deep and
indelible psychological scar in the minds of policymakers and it continues to
motivate their collective thinking (if it can be called that) and legislative
efforts. It has also helped to frame the
political agenda for the critical year ahead – a period in which the historic
120-year cycle of inflation/deflation is bottoming. This cycle promises to usher in many
important changes; indeed, we’ve already witnessed one important change to the
system. Starting in 2014 universal
healthcare coverage will be mandated in the U.S., a landmark step on the road
to full-scale economic autocracy.
If not for the continuous fiscal crises created by Congress
over the past two years, two million more Americans would have jobs. Moreover, unemployment would have dropped
under 6.7 percent and GDP growth would be around 4 percent stead of the current
2.5 percent. These statistics are the
conclusion of a study by Macroeconmoic Advisers, a nonpartisan consulting
firm. The analysis also found that
Congress’s fiscal-cliff and debt-ceiling blunders have roiled financial markets
and caused employers to cut back on prospective hiring. It has also kept consumers from spending more
as the entire system has become “paralyzed with uncertainty.”
The study concluded that the economy is being actively
sabotaged by members of Congress who exert a disproportional influence over the
nation’s financial affairs. When such is
the case, it can only be a matter of time before Washington trips up the
recovery altogether.
As
impressive as the recovery since 2009 has been, Washington’s continuous
meddling threatens to derail it in 2014.
The introduction of mandatory health insurance next year will create a
drag on the economy at the worst possible time, namely while the 120-year cycle
of inflation/deflation is bottoming. The
timing couldn’t possibly be any worse.
The Bernanke Fed “gets it” and clearly understands the danger of the
deflationary undercurrent created by the long-term Kress cycle.
Washington,
for its part, doesn’t get it. Both
Congress and the president are fighting the Fed by embracing austerity-type
measures that will inhibit growth, including tax hikes. This will create significant economic
headwinds for next year. On the plus
side, it may end up benefiting gold as fear and uncertainty rise in the face of
Washington’s economic sabotage.
As the Wall Street bromide says, “Sooner or later politics always
interferes with business.” Policymakers
seem intent on proving the truth of this saying. Unfortunately, everyone must reap the consequences.
