So what happened during the debt ceiling shutdown during the Clinton administration?: Interest rates

President Obama warns that everyone will face higher interest rates if the debt ceiling isn't increased. From Obama's July 11, 2011 press conference.

And that's the fact. If we don't raise the debt ceiling and we see a crisis of confidence in the markets, and suddenly interest rates are going up significantly, and everybody is paying higher interest rates on their car loans, on their mortgages, on their credit cards, and that's sucking up a whole bunch of additional money out of the pockets of the American people, I promise you they won’t like that. . . .

Or this statement by Obama on June 29, 2011:

But if capital markets suddenly decide, you know what, the U.S. government doesn’t pay its bills, so we’re going to start pulling our money out, and the U.S. Treasury has to start to raise interest rates in order to attract more money to pay off our bills, that means higher interest rates for businesses; that means higher interest rates for consumers. So all the headwinds that we’re already experiencing in terms of the recovery will get worse.

That’s not my opinion. I think that’s a consensus opinion. And that means that job growth will be further stymied, it will be further hampered, as a consequence of that decision. So that’s point number one. . . .

So what happened to interest rates on Federal Treasury Bonds during the debt ceiling shutdown during the Clinton administration? Note that this concern was also raised during 1995. The data are available here.

If you are interested in seeing the impact on GDP growth and unemployment see here or stock prices see here.

A nice discussion on various past government shutdowns is provided by this Congressional Research Service Report. Among the impacts of the 1995-96 shutdowns were these:

"resulted in the furlough of an estimated 800,000 federal employees"
"Another 475,000 federal employees, rated "essential," continued to work in a non-pay status."
"Federal Contractors. Of $18 billion in Washington area contracts, $3.7 billion (over 20%) were managed by agencies affected by the funding lapse"
"employees of federal contractors were furloughed without pay"
The shutdown impacted: health, law enforcement/Public safety, parks/museums/monuments, visas/passports, American Indians, American Veterans.
Among the impacts for American Indians: "general assistance payments for basic needs to 53,000 BIA benefit recipients were delayed; and estimated 25,000 American Indians did not receive timely payment of oil and gas royalties."

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Blogger Chas said...

It's astonishing for someone as powerful as the President of the United States, but when Obama talks, it's like clothes flapping on a clothesline. Sound is made, but nothing is said.
I suppose he's saying something in that he's trying to be manipulative with his words, but there's no relationship to the truth. He's just painting convenient word pictures in an attempt to get people to go along with what he wants.

7/23/2011 8:23 AM  
Blogger slazzen said...

I think we should go into default and stop trying to govern the whole world...what is china gonna do if we dont pay up declare war...stop sending us goods I doubt it..Time to go to work america bring back FDR goverment

7/29/2011 2:20 AM  
Blogger slazzen said...

I think we need to default.Its about time we face the facts.There are no good resons our goverment should have the peoples interests in their agenda.The supreme court made that very clear who the real public is these days. And the bank bailout confirmed it.Most americans I know are already in defalt. Unemployment is much higher than the false statistics. We are in a depression not a recession. the only differance is the programs that FDR put into place.

7/29/2011 2:28 AM  

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