Continuing irresolution

September 27, 2013

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The US government is one step closer to avoiding a shutdown, or at least delaying one for two weeks. The Senate has voted to keep funding the government without repealing Obamacare. The bill now goes to the House. The Washington Post’s Sean Sullivan has a good look at the calculations House Republicans and their Speaker will be making. The bottom line is that no one really knows what they will decide to do.

Moody’s Mark Zandi thinks a one month government shutdown would cut US GDP growth by 1.4% in the fourth quarter. Brad Plumer lays out what would happen if the government did close. Government employees would be categorized as “essential” or “non-essential”, and the former would continue to work during a shutdown, being paid retroactively for their time once the shutdown ended. About 1.2 of the 2 million federal workers would likely be deemed non-essential, and would be sent home without pay.

Ezra Klein and Evan Soltas make the case that a government shutdown “may be a good thing”, largely because there are political reasons why it makes a breach of the debt ceiling less likely. Treasury Secretary Jack Lew estimates that the debt ceiling will reached on, and thus need to be raised before, October 17.

Breaching the debt ceiling, Kevin Roose points out, is far more worrying than a government shutdown. The US has gone through shutdowns before, but “we have no idea what chaos a debt-ceiling breach could bring”. Investors could flee US debt, or counterintuitively flock to it; an estimated 32% of federal spending would have to be cut, but where those cuts would happen is unknown; and there would be huge, negative effects for other types of borrowing and lending across the financial system.

While Josh Barro disinters the platinum coin debate, Klein states the obvious: the best course of action would be to just get rid of the debt ceiling forever. — Ben Walsh

On to today’s links:

Ashton Kutcher, Richard Branson, and a Saudi Prince are going to make a killing on the Twitter IPO – Bloomberg

That’s Nice of You
Ex-bank PR person: “journalists can be a bit naive about how much they know” – The Guardian

How Popeyes went “upscale” – Lydia DePillis

Long Reads
A history of last meals in America – Lapham’s Quarterly

New Normal
Top 10 post-crisis bank fines – Barry Ritholtz
America’s rising disability claims and its shrinking labor force – The Economist

Hands Off
Harvard and Yale need their giant piles of money – Matthew Klein

Says Science
No, it’s really not that tough to be the boss – Scientific American

Carlyle is investing in Dr. Dre’s Beats Electronics – WSJ

Plutocrats, check your privilege – Paul Krugman

Good Luck With That
Trader fired over Libor-rigging sues for unfair dismissal – Bloomberg

“We hashed out a hypothetical plan to see whether forever-stamp arbitrage is worth it” – Quartz

Japanese lawmaker sees economic crisis in the country by 2020 – Bloomberg

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