The year 2013 has put on a dramatic economic production for those with their eyes on the market and government stage. In some moments, it had us holding our breath and sitting on the edge of our seats, and in others, it had us crying at the loss of well loved characters on the stage of national and international finance. As this years curtain is drawn closed and the stage for next year is set, let’s reflect on the ten most important economic events we saw in 2013.
1. Government Shutdown
Easily the most important economic event of 2013 was the government shutdown over the Congressional budget standoff. The shutdown set off a chain reaction of concerns and market uncertainties. According to a White House Office of Management and Budget report, the cost of furloughs in lost productivity alone tallied up to $2 billion.
The Council of Economic Advisers estimated that the shutdown — in combination with the default scare — resulted in possibly as many as 120,000 private sector jobs being created in just the first two weeks of October. Then, there was the economic uncertainty that all furloughed workers dealt with — cutting consumer spending and consumer confidence not far ahead of the holiday season. At the end of November, the consumer confidence index dropped to 70.4 from 72.4 in October — continuing the droop that’s been the pattern ever since the shutdown.
2. Debt Ceiling Standoff
This year was not the first time Congress put the Nation in a position that risked defaulting on government debts; being a re-occurrence does not lessen its impact though. Not only did Congress’ extended refusal to raise the debt ceiling place the United States market on guard, it had a negative effect on international relations as well.
“As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to starty considering building a de-Americanized world,” wrote Liu Chang of Xinhua, the official news agency of China.
The standoff went down to the last possible minute, and had some Republicans even claiming that a default might not be the worst thing for the United States — while other economists preached disaster. Nearly defaulting on international debt unquestionably belongs on the list of important events in 2013.
3. Bond Buying Taper
The timeline around the Federal Reserve’s bond buying taper is still uncertain — however some members of the Fed indicate that it could be on its way before the 2014 cutoff. The asset purchase program is both an actor on national economic health, and a barometer of its health.
Market expectations are dependent upon the Fed’s plan for the purchase program — and economic health determines whether the program’s continuation is necessary. When unemployment rates decreased for November, Charles Plosser suggested the Fed “gracefully exit” its quantitative easing efforts.
Fed President Jeffrey Lacker of Richmond pointed out the market’s dependency of the Fed’s policy making. “If we change the setting of one policy instrument like asset purchases, it’s going to be hard to convince people it doesn’t have implications for the path of short term insterest rates,” said Lacker.
One the one hand, the national deficit has been decreased through the largely Republican efforts of the sequester, automatic cuts to federal programs. The sequester cut expenses in funding in areas across the board. NPR reports that Native American education budgets have been cut — leading to school closures, as have Air Force budgets.
The new budget deal has lessened the severity of the sequester though, good news for a number of groups and American citizens. “This agreement replaces a portion of the across-the-board spending cuts known as ‘the sequester’ that have harmed students, seniors, and middle-class families and served as a mindless drag on our economy over the last year,” said President Obama in a press release on December 12.
5. Benefit Programs Cut
With the discussion of the sequester, it seems appropriate to get a bit more specific on which programs and some people who have strongly felt the economic brunt of cuts. One such program was the Women, Infants, and Children (or, WIC) program.
According to the Center on Budget and Policy Priorities, WIC serves around 9 million individuals in need — but has taken real hits this year in funding. Pair this with cuts in food stamps and it’s clear that underprivileged Americans have seen a fair amount of hardship from economic policy this year. The Supplemental Nutrition Assistance Program lost its additional funding this year, shrinking the average aid by 5 percent.
“A household of three, such as a mother with two children, will lose $29 per month, equivalent to about 16 meals a month for a family of three based on the cost of the U.S. Agriculture Department’s ‘Thrifty Food Plan,” reports the Center on Budget and Policy Priorities.
6. Sanctions Against Iran
More significant than any economic effect it may have had on the United States — though that too is important — sanctions against Iran’s oil and gas industry have had a major crippling effect against the countries economic health. Though according to Forbes, possibly less crippling than some may suspect — with many working around sanctions and others looking to natural gas, petrochemicals, and other exports to make up for the loss.
That said though, it’s clear that a major boost in oil exports will aid the countries economy. Iran’s Deputy Oil Minister Kazzem Valziri-Hameneh said in early December that the end to economic sanctions could aid Iran’s oil export situation — a result of a nuclear agreement. The tentative deal resulted in the Iranian rial appreciating 3.45 percent against the dollar on the black market, an indicator that the diplomatic progress has resulted in positive Iranian expectations.
7. Detroit’s Bankruptcy
On December 3, Detroit’s bankruptcy petition was ruled in Federal Bankruptcy Court by Steven Rhodes. Judge Rhodes allowed the city to file for bankruptcy protection, cutting out a giant chunk of its debt — billions in fact.
This has some, including Detroit city mayor, David Bing, optimistic about the suffering city’s economic future. “In the long run, the future will be bright,” said Bing. The ruling brings far worse news for city pensioners, allowing Detroit to cut pensions even though Michigan’s constitution protects pensions. This alteration in precedence was explained by Rhodes as not applying “to the federal bankruptcy court.” Appeals to the ruling are likely — however, Detroit’s economic situation and future options remain notable.
8. Lawsuits Against Big Banks
The year 2013 brought with it the record breaking Settlement between JPMorgan Chase (NYSE:JPM) and the Department of Justice for $13 billion — around half of the banks annual profit, and the biggest price-tag ever seen for one bank alone to settle a government lawsuit. The suit, over bad mortgage investment sales pre-financial crisis was just one giant lawsuit amidst a storm of other smaller litigation proceedings.
Other banks also faced suits, making 2013 a rough year for financial businesses, including Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Bank of America (NYSE:BAC), and others. JPMorgan also settled up with Fannie Mae and Freddie Mac for sales of mortgage securities for around 12 percent of the $33 billion purchase amount. The lawsuits are indicators, according to experts, that the government will go after fraud more aggressively in future.
9. Home Mortgage Debt
According to Market Watch, the home mortgage debt went up for the first time since the “Great Recession” began in 2009. In the third-quarter it rose at a seasonally adjusted annual rate of 0.9 percent, or $87.4 billion, according to Market Watch.
Even so, the present $9.39 trillion in home-mortgage debt is a 12 percent drop from the first-quarter of 2008 — prior to the housing bubble popping. This means that while American’s are somewhat more willing to go into debt for the sake of home ownership, confidence hasn’t recovered yet.
10. New Budget Deal
Finally, we hit the most recent, and possibly most uplifting item for the year — Congress passing a bipartisan budget dealing — finally. While the agreement certainly isn’t the grand agreement so many hoped for, it does manage to accomplish goals on both sides of the aisle.
“This agreement doesn’t include everything I’d like — and I know many Republicans feel the same way. That’s the nature of compromise. But it’s a good sign that Democrats and Republicans in Congress were able to come together. That’s the way the American people expect Washington to Work,” said President Obama in response to the December 12 agreement.
“This agreement makes sure that we don’t have a government shutdown scenario in January. It makes sure we don’t have another government shutdown scenario in October. It makes sure that we don’t lurch from crisis to crisis,” said House Budget Committee Chair Paul Ryan (R-Wis.).