Economic Confidence Plummets as Political Torpedos Fly

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Congress is the set of this year’s most dramatic reality show, and Americans are not amused. The partial shutdown of the U.S. government is now stumbling into its third week, and Uncle Sam is due to crack his head against the federal borrowing limit on Thursday if policymakers fail to pass a stopgap measure to deal with the debt ceiling.

As the political brinksmanship drags on, the damage caused by the increasingly dubious fiscal situation in the U.S. adds up. Economic confidence, already shaky in the wake of the late-2000s financial crisis, has plummeted. Gallup’s Economic Confidence Index average -39 last week, a 27-point decline over just two weeks, and the lowest level since November 2011, which was the last time politicians jerked around with the debt ceiling.

A separate Gallup survey, published on October 9, confirms that the decline in economic confidence is largely a result of Congress. According to the survey, with 19 percent of the vote, Americans believe that a dysfunctional government is the is the biggest problem in the U.S., surpassing the economy, with 12 percent.

In many ways, consumer confidence can be used as a barometer for the overall health of the economy. When economic confidence falls, both consumers and businesses are less likely to spend money, marking the beginning of a destructive self-reinforcing cycle.

The performance of financial markets can also be used as a way to diagnose the health of the economy. On Tuesday, major equity indexes in the U.S. declined as optimism for a possible debt ceiling deal began evaporating. Markets initially rallied around the idea that the Senate could assemble a stopgap package to raise the borrowing limit and reopen the government, but as Senate Majority Leader Harry Reid (D-Nev.) explains, the House is apparently trying to torpedo this idea.

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