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The recurring spectre of a government shutdown has once again loomed over the United States, prompting concerns about its potential economic consequences. The shutdown may occur this weekend unless lawmakers agree on spending levels and whether to give more aid to Ukraine. Economists and analysts are closely examining the situation, weighing the likelihood of a recession, and evaluating the resilience of the American economy in the face of this uncertainty.
The Longer the Shutdown, the Greater the Damage
A recurring theme has emerged from past government shutdowns: their duration directly correlates with the extent of economic damage.
A brief shutdown is unlikely to significantly impede economic growth or push the nation into a recession, as both Wall Street and the Biden administration economists contend. Historical evidence from previous government funding stoppages supports this assertion, revealing limited economic disruption during short-lived closures.
However, the narrative shifts when contemplating a protracted shutdown scenario. A sustained government shutdown has the potential to erode economic growth, potentially impacting President Biden's re-election prospects. This challenge would compound other economic headwinds anticipated in the final months of the year, including elevated interest rates, the resumption of federal student loan payments, and a possible extended United Automobile Workers strike.
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