8:25 a.m. ET, September 20, 2023
US debt rises to $33 trillion as government shutdown looms
As the U.S. national debt passes $33 trillion and a government shutdown looms, Wall Street is feeling defensive.
This shutdown could dampen sentiment and deal a blow to an economy already struggling with high gasoline prices, autoworker strikes and increased inflation – some say it could even raise the possibility of a recession.
Political pointer The question of what caused the accelerated rise in debt has now led the government to a budget impasse.
The budget deficit – the difference between the government’s spending and revenue – reached $1.5 trillion in the first 11 months of the fiscal year, a 61% increase since last year.
The recent rise in interest rates has already made it significantly more expensive for the state to repay its debts. And a closed government without a plan to pay off its debt would make the problem worse.
Republicans say federal spending programs promoted by the Biden administration are too expensive, and Democrats say tax cuts supported by the Republican Party have reduced revenue.
Sept. 30 marks the end of the fiscal year, and lawmakers must reach a 2024 budget deal by Oct. 1 to avoid a government shutdown. However, none of the 12 budget bills needed to fund the government have yet been passed by Congress, making it unlikely that a plan will be passed on time.
The threat of a shutdown comes as the U.S. economy is already feeling the pressure of inflation, interest rate hikes and a high deficit, UAW strikes, renewed student debt repayments and rising gasoline prices, said Gary Schlossberg and Jennifer Timmerman of the Wells Fargo Investment Institute.
Each of these things, they said, “weighs on housing construction, consumer finances and government financing costs, increasing recession risks in the final months of the year.”
A government shutdown would halt most government agency activities and services and force all non-essential government employees to take unpaid leave. Analysts at EY estimate that there are about 800,000 non-emergency federal employees with an average salary of $95,000 each.
The extent of the damage depends on how long a possible shutdown lasts.
EY chief economist Gregory Daco and his team estimated that each week of a government shutdown would cost the U.S. economy $6 billion and shave 0.1 percentage points off GDP growth in the fourth quarter of 2023.
The shutdown would also result in a lag in economic data, Daco said, “causing potential headaches for economists and policymakers trying to assess the state of the economy.”
Shutdowns over the past 30 years have lasted anywhere from a few days to over a month, but Schlossberg and Timmerman believe this one has the potential to last a few weeks due to “hardened positions in an increasingly polarized Congress.”