UofSC economist says government shutdown unlikely to happen at end of week, with debt ceiling deadline looming

September 28, 2021

By Mary Green

COLUMBIA, S.C. (WIS) – An economist at the University of South Carolina said the federal government is unlikely to shut down Friday at midnight, the deadline by which Congress needs to reach an agreement on funding to keep it open.

Past that, lawmakers face another deadline moving closer to raise the debt ceiling.

Joseph Von Nessen, a research economist at UofSC’s Darla Moore School of Business, said he is optimistic members of Congress will be able to reach agreements on both these issues.

“Both sides of the political aisle agree that the debt ceiling does need to be raised, so that’s a good thing because it means that everyone involved is incentivized to make sure this is resolved,” he said.

But so far, the two parties have failed to do that.

Friday’s deadline comes as the federal government begins a new fiscal year on Oct. 1. If a shutdown does happen, some government programs could be paused, and hundreds of thousands of federal workers could be furlough, including thousands in South Carolina. The last time the federal government partially shut down, at the end of 2018, about 3,600 federal employees in South Carolina went without a paycheck for the duration of the 35-day shutdown, though the government did provide back pay once it reopened.

The South Carolina Small Business Chamber of Commerce said a failure to work this out could hurt the state and local economies.

“If we have a shutdown, and we have thousands of people who are not working, maybe for a long period of time, they’re not going to be going to restaurants,” President and CEO Frank Knapp said. “They’re going to be holding back on what they purchase. They’re going to be spending less money on Main Street, and that’s what harms small businesses.”

On Monday night, Senate Republicans blocked a proposal that would have tackled both issues — increasing the debt limit and funding the government until December to stop a shutdown — saying Democrats alone should be the ones to raise the debt ceiling and can do so without Republican votes.

The day next, Treasury Secretary Janet Yellen sent a letter to Democratic Speaker of the House Nancy Pelosi, writing the Treasury “would be left with very limited resources that would be depleted quickly” if Congress fails to suspend or raise the debt ceiling by Oct. 18, in less than three weeks.

Von Nessen said the debt limit needs to be increased so that the government can pay its bills and fund programs and obligations it already has, such as Social Security.

“In the event that it isn’t resolved, even for a very brief period of time, that could have some practical consequences because we will see, likely see financial markets a bit rattled, consumer and business confidence could take a hit, and from a practical perspective on the ground, what you would see every day is short-term borrowing costs likely going up in terms of interest rates, and of course, if businesses need access to financial capital or consumers are looking to borrow money to make a major purchase, that would impact them,” Von Nessen said.

Democratic leaders have vowed they will not allow the government to shut down, which could result in separate votes on the two issues at different times and potentially without bipartisan support.

Von Nessen believes lawmakers on both sides of the aisle don’t want a shutdown or a default on debt to happen, especially now.

“They both recognize that this economic recovery that we have seen throughout the year as we recover from the COVID pandemic has been very strong for the US and in South Carolina, but it is also very fragile, and so we want to make sure that we don’t do anything to derail the momentum of the recovery that we have seen,” he said.

UofSC economist says government shutdown unlikely to happen at end of week (wrdw.com)

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