Global Economy Eyes the United States Congress

International Monetary Fund Director Christine Lagarde
International Monetary Fund Director Christine Lagarde

Furloughs and approaching holidays have the people of the United States eying their government daily as the shutdown continues. The world waits and watches, too. The global economy which just recently, after a massive recession, is standing and back on its feet with nominal growth. Today is five years to the day after a law was enacted to bailout our banks and rescue us.

The recent government shutdown continues and more furloughs could be seen. United Technologies corporation, which supplies the United States Military with vital supplies such as Black Hawk helicopters and F-35 engines might have to layoff up to 5,000 by November. Pratt and Whitney would be affected also. Military spending already has a mandated budget cut of $500 billion over ten years; this is known as sequestration. Will Congress stop the shutdown? Will Congress raise the debt ceiling by October 17th?

Holidays which are rapidly approaching expect a 3.9% increase in sales over 2012. The National Retail Federation says this amount is $602.1 billion. Their slightly rosy forecast  could be impacted by this government closure and just when things were looking better since 2008. This optimism is being balanced by the political shutdown in Washington, D.C.

The holidays to come with their big ticket items and the online sales market which could reach $82 billion, should add to the turn around of the housing market that was seen this summer. The online market speculation would be a double digit increase from last year alone. One note that didn’t increase was back to school sales.

Yes, five years ago today marks the law enacted¬† to save the banks and ultimately us. According to Warren Buffett, a billionaire and investment guru, he believes the bailout was essential in restoring Americans faith in our banking institutions . He’s quoted as saying, “Belief creates its own reality. If people think the banking system is unsound, it is unsound, because no bank can pay out all of its liabilities at the same time.”

Warren Buffett did give Goldman Sachs $5 billion and thereby rescue them and most likely all of us. This of course has netted the investor $2 billion worth of stock in Goldman. President Obama met with financial chief executives who discussed unfavorable outcomes if the debt ceiling is not raised by October 17th. Warren Buffett believes the sooner the better and defaulting on Washington’s credit by the Republicans “won’t work long term.”

The global economy may be more impacted by the US not raising its debt ceiling on October 17th than the current shutdown. Why? The US needs to get its finances in order for the long-term, raise the debt ceiling and not default. A default could cause a worse crisis than 2008 did, according to Christine Lagarde, IMF director. What is the debt ceiling for the United States? It is $16.7 trillion.

This past Tuesday the US government closed national parks, tourist sites, government websites, office buildings, and other non-essentials. Approximately 700,000 employees are on furlough without pay.

“Deflation is coming to an end and a new found optimism is in the air,” says Christine Lagarde on Thursday. She cites shadow banking as larger(twice) than the banking sector in America and China. Shadow banking is a sector which is not regulated. She’d like to see governments work together and better in this globalized world.

By Kim Troike

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