The government shutdown is only three days old, yet a bigger battle already looms: raising the debt ceiling.
The Treasury Department on Thursday released a report warning that breaching the borrowing limit on October 17 could have dire economic consequences. The last time the U.S. government squabbled its way towards even the possibility of defaulting, it stung the economy.
“The stock market went down, it got more volatile, there were effects on consumer confidence,” says Alice Rivlin, a senior fellow at the Brookings Institution.
The S&P 500 fell 17 percent, U.S. debt was downgraded and job growth slowed. It took months to recover.
“It was a serious situation even though we didn’t default, we just talked about it,” Rivlin says.
But it’s hard to say that that same thing will happen again, because other stuff was going on at that time.
“The thing that people lose track of a little bit is that that’s really kind of the time when the eurozone starts falling off the cliff,” says Bill Stone, chief investment strategist for PNC Wealth Management.
That also may have hurt the stock market. On the flip side, though, Europe looked so bad compared to the U.S. that investors flocked to Treasury bonds, even after they had been downgraded following the the debt-ceiling battle.
And investors are doing the same these days. So if people take the possibility of a default seriously, says Stone, “It’s odd that the flight to safety flies to the thing that people are worried about. Treasury yields are actually down.”
That’s because investors can’t fathom that Congress would do something so insane as to let the U.S. default on its obligations, says Steve Blitz, chief economist with ITG.
“Every financial institution in the world has their capital in U.S. Treasuries,” he says. “This thing runs through everything.”
Brookings’ Rivlin says while the current economic situation may be better, the political situation is worse.
“The consequences are even more dire than 2011 because the government is shutdown, the atmosphere is so bitter and financial markets might take more seriously that the United States is seriously flirting with not paying its bills,” she says. “I don’t think the world took us very seriously in August of ‘11. At some point we will be taken seriously and then the crisis could be dire.”
Even if it doesn’t come to that, there is still a risk.
“The real issue is: What does the deal look like that gets government back to work, that raises the debt ceiling,” says ITG’s Blitz.
There could well be some kind of brutal compromise that cuts government spending deeply or randomly, like last time around.
“That’s the critical thing. That’s what we’re going to live with,” Blitz says. “If it is a deal that is a little bit too draconian, it’s going to slow the economy.”
So not only would failing to raise the debt ceiling by October 17 hurt the economy, and not only might arguing over raising the debt ceiling hurt the economy, but even resolving the debt ceiling problem could hurt the economy.
It's all coming full circle: The social network that famously began in a dorm room is now essentially thinking about buildging dorms on its own office campus.
According to the Wall Street Journal, Facebook said it's in talks with a developer to build a $120 million, 394-unit housing community called Anton Menlo that'll be within walking distance of its offices. Amenities of the 630,000 square-foot rental property would include a pet spa with doggy day care, an indoor/outdoor wellness and yoga studio, a bike repair shop, a convenience store and a sports bar. At this point, there'll be space for only about 10 percent of Facebook employees.
The old-school idea of a company town, like those of the coal mining regions of the early 20th century, could be an ideal situation for those working in Silicon Valley, where real estate prices are skyrocketing amid a housing shortage in the Bay Area.
On the other hand, the ever-in-flux mindset of the tech community is completely contradictory to the idea of living where you work. Younger tech employees don't necessarily feel tied to their companies, and having to sign year-long leases with your employer might feel something equivalent to a death-sentence commitment.
How would you feel about living so near work, or about living in a space owned by your employer? Would it be a benefit, or a downside?
Twin challenges — a shift in opinion about the stock by an influential research firm and a YouTube clip of a fire that destroyed a Tesla Model S — seem to have shaken investors a bit.
Artisanal meat producers face a big barrier to getting into the game: They have to come up with a complex food safety plan that can take months of research and tens of thousands of dollars to craft. A new project wants to make it easier for the next charcuterie master to open shop by creating an open-source safety plan that newbies can look to.
Oil and natural gas platforms in the Gulf of Mexico have already been evacuated in anticipation of the storm, which is expected to make landfall as early as Saturday.
The Labor Department says it won't be releasing its closely watched monthly jobs figures as scheduled on Friday due to the government shutdown. That will leave Federal Reserve policymakers, economists and financial markets without key data for making decisions.