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Economic effects of the federal government shutdown: Part 2

December 10, 2013

What does it mean for the economy that we have been unable to reach any kind of long-term deal or sustainable budget solution? I hate to say it, because I really do feel like a broken record, but we are just continuing to kick these issues down the road. Nothing has been resolved, and there is very little to indicate that anything will be resolved in the immediate future. As a result, continued political and economic uncertainty and a great deal of justifiable hand-wringing seems to be on the menu going forward.

Rightly or wrongly, Republicans are getting the bulk of the blame for the recent shutdown, and a divided Congress is not helping the situation. But whatever side of the political divide you are on, it is hard to argue that some kind of drastic or change of direction is needed to reverse the unsustainable spending that continues to add to the national debt. We continue to move forward with no real plan in place to fix the deficit.

Given the depth of the problems, everything needs to be on the table, including scrutiny for some big programs like Medicare and Social Security. Consider these sobering numbers: there is a 1.4 trillion deficit for Medicare this year alone. By 2026, Medicare funding will be exhausted, and by 2021, Social Security payments will begin to outstrip the money coming in. Interest on the debt will quadruple by 2024. Every penny that we spend financing the debt is a penny we can’t spend on infrastructure, the military, social programs and other vital national interests.

While the deficit is projected to drop in the next couple of years, the basic fact is this: we are still spending more money than we have every single year! Nothing in the budget deal addresses any of these issues. And, once the Fed deems the economy is strong enough, the faucet of “free money” and the crutch of low interest rates will be turned off and growth may come to a screeching halt. In other words: the government shutdown may be over, but the problems that brought things to a head are far from resolved.

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Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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