What Happens To The Economy If The Government Shuts Down?

Most analysts are predicting that a shutdown of the federal government will not last long. But there's no guarantee, and the mere possibility that a shut down might drag on was enough to push down the stock market today. It's one of many possible economic impacts a shutdown might have.

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AUDIE CORNISH, HOST:

There's no guarantee that a shutdown, if it happens, will be short. The mere possibility of a longer stalemate was enough to push down markets here and abroad today.

MELISSA BLOCK, HOST:

If there is a shutdown, about 800,000 federal workers will be furloughed, although many will still be required to show up for work.

CORNISH: Social Security checks will still go out and the postal service will still deliver the mail.

BLOCK: All active duty military personnel would stay on the job. Anything related to national security, in fact, anything deemed essential, would continue.

CORNISH: After that, determining which particular agency or program will be open for business will be tricky. Joining us to talk about the shutdown and how it might affect the economy is NPR economics correspondent John Ydstie.

Hi there, John.

JOHN YDSTIE, BYLINE: Hi, Audie.

CORNISH: So, how big an effect would a shutdown have on the economy?

YDSTIE: Well, the general view is that a relatively short shutdown, a few days or a week, won't have a huge effect on the economy. If it gets longer than that, then it gets more serious. Many things that are important to business will continue even if there is a shutdown. Air travel, for instance. Air traffic controllers, airport and airplane safety inspections, TSA passenger screening - all those will continue to operate normally.

Some important government economic data could be delayed. The monthly employment report is scheduled for this Friday and it's not yet clear whether that will come on time, which could weigh down the financial markets. The Federal Reserve will not be affected. It doesn't depend on congressional appropriations.

CORNISH: Now, what about government income support programs, which are pretty important to the economy?

YDSTIE: Yeah, as you said, Social Security checks will go out and applications for Social Security are expected to continue, but there could be some delays. Medicare and Medicaid payments will continue, as well. There will be some disruptions in military contracting as a result of big furloughs at the Defense Department. Many defense contractors may not be paid on time and contracts that are in process could be delayed.

CORNISH: Now, another area where there's a big government involvement, the mortgage market, what will happen there?

YDSTIE: Well, it's a mixed picture. Fannie Mae and Freddie Mac - which are government-sponsored entities but have their own income sources - will continue to guarantee mortgages. The FHA, the Federal Housing Administration which backs mortgages for many first-time and low-income borrowers, will continue to operate normally for single-family dwelling mortgages but not for multi-family dwellings. That's due to a difference in the way each activity is funded.

The Mortgage Bankers Association sent a letter out to its members saying they should expect delays in getting tax information, and even the verification of Social Security numbers for mortgage applications. And if the shutdown is long enough, that could affect mortgage approvals and interest rate locks might expire for some home buyers.

CORNISH: So looking at the big picture, is this likely to slow growth in a serious way?

YDSTIE: Well, again, it all depends on how long it lasts. Really, the more serious issue for the economy is this looming debt ceiling deadline in mid-October. If Congress can't agree to raise it and the U.S. government defaults on its debts, that could undermine the whole financial system and be catastrophic for the economy.

CORNISH: That's NPR's economics correspondent John Ydstie. John, thank you.

YDSTIE: You're welcome.

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