UofSC economist says government shutdown is unlikely by the end of the week

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CHARLESTON, SC (WCSC) – A University of South Carolina economist said the federal government was unlikely to close at midnight Friday, the deadline by which Congress must reach an agreement on funding to keep it open keep.

After that, the legislature faces another deadline, which is getting closer, to raise the debt ceiling.

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

“Both sides of the political corridor agree that the debt ceiling needs to be raised. That’s a good thing because it means that everyone involved has an incentive to see that this is resolved, ”he said.

But the two parties have not yet succeeded in doing so.

The Friday deadline comes because the federal government starts a new fiscal year on October 1st. If there is a shutdown, some government programs could be paused and hundreds of thousands of federal employees, including thousands in South Carolina. In the last partial federal government shutdown in late 2018, about 3,600 federal employees in South Carolina waived a paycheck for the 35-day shutdown, despite the government making back payments after the reopening.

The South Carolina Chamber of Commerce for Small Businesses said failure to clarify could harm the state and local economies.

“When we have a shutdown and thousands of people who may not be working for a long period of time, they will not be going to restaurants,” said President and CEO Frank Knapp. “They will hold back on what they buy. You’ll spend less money on Main Street, and that hurts small businesses. “

On Monday evening, Senate Republicans blocked a proposal that would have addressed both issues – raising the debt ceiling and funding the government through December to stop a shutdown – saying that Democrats should be the only ones to raise the debt ceiling and can do so without republican votes.

The next day Treasury Secretary Janet Yellen sent a letter to House Democratic Speaker Nancy Pelosi stating that the Treasury Department would have “very limited resources that would be quickly depleted” unless Congress suspends the debt ceiling by October or raises. 18, in less than three weeks.

Von Nessen said the debt ceiling needs to be raised to allow the government to pay its bills and fund existing programs and obligations like social security.

“In the event that it is not resolved for even a very short period of time, there could be some practical ramifications as we are going to see the financial markets likely to be shaken a bit, consumer and business confidence could take a hit, and from From a practical on-site standpoint, you’d see any day that short-term borrowing costs are likely to rise in relation to interest rates, and of course, if businesses need access to financial capital or consumers want to borrow money to make a bigger business purchase, that would affect them they affect, ”said Von Nessen.

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

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

“Both acknowledge that this economic recovery that we have seen throughout the year as we recovered from the COVID pandemic has been very strong for the US and South Carolina, but is also very vulnerable to doing nothing derail the momentum of the recovery that we have seen, ”he said.

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