Will the U.S. Government Shutdown Affect the Rest of the World?


David Cameron spoke out as to the potential harmful effects of the American government shutdown to the rest of the world, Bloomberg reports. ”It is a risk to the world economy if the U.S. can’t properly sort out its spending plans,” Cameron warned. His statement comes in the wake of the furlough of nearly 800,000 U.S. government employees during the shutdown. If the shutdown continues, it could cause a significant adverse change in American growth rates in the final quarter of 2013.

What Cameron stressed is that the shutdown could impact not only Americans — including national park travelers, museum goers, and the families of the furloughed employees — but the rest of the world as well. Many are concerned that a prolonged shutdown could cause uncertainty in bond markets as doubt builds as to the U.S. government’s credit rating. This, in turn, could lead to shocks in the world’s bond markets when foreign rates have to rise to correspond to U.S. rates.

So far, the world’s stock markets have not reacted negatively to the shutdown, even posting modest gains on Tuesday. This has led some to speculate that investors feel as if fears over the Washington shutdown have been overblown. Despite stocks holding value so far, the U.S. dollar slid against other currencies upon the news, which is not an entirely unwelcome change for some currencies that had lost ground against the dollar amid fears over the tapering of quantitative easing earlier this summer.

Some analysts have taken a different approach to the shutdown, claiming that if stocks drop, there will be a major opportunity to buy shares on weakness. So far, traders looking for opportunities have not found them abundant, though markets may begin to slump if the shutdown does not show any signs of relenting.

Many international newspapers had bad things to say about the shutdown, with many wondering how their own countries are supposed to maintain their government operations if the U.S., considered to be the most powerful economy in the world, cannot keep its own affairs in order. Some even went as far to question how Syria can keep on funding its government in the middle of a potential invasion, but the U.S. has run out of money even though no tangible crisis is in the works.

What was universal among all the headlines and comments made across the world is the sentiment that the U.S. needs to fix the shutdown with all available speed. As the gridlock continues in Washington, uncertainty will only continue to grow, and more and more people will begin to question how sound the U.S. economy really is.

Don’t Miss: ADP: Service Sector Leads Small September Jobs Gains.