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Federal Reserve Tapering

Vince Bellino ‘14, Financial Editor & Thomas McCarthy ‘14, Staff Writer 

If you have watched the news in the past few weeks you could not have missed the issues that are currently facing the United States Government concerning passing the spending budget. As the budget has not been passed the government has moved into its second week of shutdown. As some have watched in fear of the government shutdown, you may have asked yourself what does this really mean? The issue facing our government today is trying to pass an acceptable budget for the upcoming year and there is some serious confrontation on the issue of funding the Affordable Care Act, also known as “Obamacare”.

The shutdown has furloughed, temporary leave without pay, nearly 800,000 government workers and has shutdown the national parks and monuments due to the spending budget for these government agencies and attractions not being available. Politics and budget decisions aside, from a market and global economic perspective, the government has some much larger issues coming into play than trying to pass the budget for Obamacare.

Regardless that the government has been shut down for the second week, another deadline is quickly coming about which is the decision on what to do with the US debt limit. The decision to raise the debt ceiling or default is due on October 17th 2013. This issue has faced the US in the recent past in August of 2011. This debate on whether or not to raise the borrowing limit in 2011 caused a downgrade of the US credit rating from AAA to an AA+ rating by Standard and Poor’s. These ratings are indications of the likelihood that a government is to repay their debt to whoever is the holder of the debt issued. If the government, in the current shutdown, does not pass a temporary or long term debt limit expansion well before the deadline, the perception is that the US government lacks the confidence in their ability to pay back the debt outstanding. If this debt limit is not raised, the United States faces having another downgrade of credit rating. These downgrades have a negative effect on not only the holders of debt, fear of not getting repaid, but also on the US dollar’s global reserve currency status. If the US government does not make a decision on whether or not to raise the debt limit the United States faces the decision to default. Defaulting simply means the failure to fulfill an obligation. The US government will not have enough cash to pay its bills if the borrowing limit is not extended. In addition, the affect of the US government not meeting its debt obligations will most likely have an impact on financial institutions, stock markets and US currency valuations globally.

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