US govt shutdown: Should Indian investors worry?
The essential workers will stay back and work without pay, while the rest will stay home until the Congress works out a solution.
October 01, 2013 / 10:44 IST
Moneycontrol Bureau
The US government has shut down for first time since 1996. So what does that exactly mean?Washington Post explains:"There are wide swaths of the federal government that need to be funded each year in order to operate. If Congress can't agree on how to fund them, they have to close down."But not every government worker will have to go home. That is because the services are classified as 'essential' and 'non-essential'.The essential workers will stay back and work without pay, while the rest will stay home until the Congress works out a solution.While there have been nearly two dozen instances of shutdowns since the 1970, some consolation here is that the longest shutdown has lasted only for 17 days and workers will be compensated for the days lost once funding to these departments resume.What markets across the globe would be more worried is about the dispute over the raising of the debt ceiling. And what exactly is that?More from the Washington Post:"If we hit the debt-ceiling then the Treasury Department won't be able to borrow money to pay for spending that Congress has already approved. In that case, either Congress will have to lift the debt ceiling or the federal government will have to default on some of its bills, possibly including payments to bondholders or Social Security payouts. That could trigger big disruptions in the financial markets-or a long-term rise in borrowing costs."Robert Peston, BBC business editor, puts it even more grimly in his column today, titled 'Gathering Storm':"At that point (if an agreement is not reached) the unthinkable would actually happen-default on trillions of dollars of US public sector debts, meaningful losses for pretty much every bank, central bank and pension fund on the planet, and a worldwide rise in interest rates for a global economy still wholly dependent on cheap money (just to remind you - the yield or interest rate on US Treasury Bonds is the benchmark for pretty much all interest rates, and when the bond prices fall, yields or rates rise)." Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
