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Congress dodges financial disaster

By Mark Hamrick · Bankrate.com
Thursday, October 17, 2013
Posted: 11 am ET

The U.S. has avoided default and brought federal workers back to their jobs after a 16-day partial government shutdown. In approving legislation to end the crisis, Congress effectively hit the snooze button on both problems. The stage is potentially set for another crisis three months into the future.

The votes in both chambers were overwhelmingly in favor of resolution, marking a sharp setback for Congressional conservatives. In the Senate, the vote was 81-18, while the House vote was 285 to 144.

With the legislation, the debt limit is suspended until Feb. 7, 2014, and federal agencies are funded through Jan. 15, 2014.

About 12 hours after he signed the measure, President Barack Obama urged both sides to work together to avoid another breakdown. Said the president, "There are no winners here. These last few weeks have inflicted completely unnecessary damage on our economy. We don't know yet the full scope of the damage, but every analyst out there believes it slowed our growth."

Sterne Agee chief economist Lindsey Piegza said the result "isn't a solution at all but simply kicks the can down the road."

How can Washington avoid another damaging meltdown, given a short timeline? In the hope of addressing that, the measure also created a bipartisan budget panel, headed by Rep. Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash. They must report on plans for a long-term budget by Dec. 13.

Murray issued a statement saying, "My hope is that in the weeks and months ahead we can heal many of the partisan divides that keep us from addressing the big challenges we face, including returning our focus to creating jobs and improving our economy."

Ryan also sounded a spirit of hope, even after he voted against the bill to avoid default. "I look forward to convening the first conference on a budget resolution since 2009. And though a budget resolution by itself can't resolve our spending problem, I'm committed to making a bipartisan budget conference a success," he said in a statement.

As Obama acknowledged the challenges of forging an agreement, he said, "We shouldn't approach this process of creating a budget as an ideological exercise -- just cutting for the sake of cutting.  The issue is not growth versus fiscal responsibility -- we need both."

In the meantime, damage has been done. Economists at IHS Global Insight say the three weeks of government shutdown will reduce growth in the current quarter from an earlier estimate of 2.2 percent to 1.6 percent. Their note says, "There will also be some impact from lost private-sector jobs tied to the shutdown, as well as a loss of consumer and business confidence resulting from the debt-ceiling showdown."

Standard & Poor's said the shutdown cost the U.S. economy $24 billion and also revised down its forecast for the economy in the current quarter.

The crisis has also prompted leaders around the world to continue to ponder the risks posed by the U.S. International Monetary Fund Managing Director Christine Lagarde issued a statement saying, "It will be essential to reduce uncertainty surrounding the conduct of fiscal policy by raising the debt limit in a more durable manner." The latter is a reference to the proverbial can being kicked, again. Lagarde says the IMF continues "to encourage the U.S. to approve a budget for 2014 and replace the sequester with gradually phased-in measures that would not harm the recovery, and to adopt a balanced and comprehensive medium-term fiscal plan."

On the challenges in the months ahead, the note from IHS Global Insight included what their economists called "the bottom line." They said, "The U.S.'s prestige in global financial markets and world capitals will continue to deteriorate if we lurch from crisis to crisis."

In his first public appearance just minutes after Senate passage, President Obama had prepared remarks and took no questions. Even so, one reporter asked, "Mr. President, isn't this going to happen all over again in a few months?"

Obama stopped and turned with a one-word reply: "No." The official transcript also noted "(laughter)" after his answer.

Do you think that members of Congress and President Obama can avoid another crisis in the months ahead?

Follow me on Twitter: @hamrickisms.

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3 Comments
jay
October 22, 2013 at 8:34 am

No, Mark, Congress did not dodge a financial disaster. We (the taxpayers) are still on, and always will be on the hook for the foolish decisions that are made in Washington. And I would say that 98% of those decisions benefit Congress - somehow someway.