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Government shutdown 2013: why it may be most important one ever (+video)

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If the government shuts down at midnight Monday – as now seems likely – the effects on the US economy and political system could be profound. In fact, 2013 might be the most consequential shutdown ever, surpassing the impact of the Bill Clinton/Newt Gingrich standoffs of 1995 and 1996.

For one thing, the economy today is much softer than it was in the mid-1990s. Back in ’95, the Federal Reserve’s biggest worry was that the go-go years had gone too far and the economy was in danger of overheating, resulting in an inflation spike. So the Fed hiked interest rates, cooling things down at the end of year.

That produced a “soft landing” from which growth of US gross domestic product took off in ’96. GDP growth was 4.7 percent for the second quarter, after the brief shutdown period was over. Overall GDP growth for the year was about 3 percent, and unemployment fell to 5.4 percent.

Nowadays, the jobs picture is much bleaker. Unemployment is 7.3 percent as the economy continues to struggle to recover from the Great Recession. Second quarter GDP growth was 2 percent, and economists are predicting a 2013 GDP rise of 1.5 percent, or a bit higher.

So a shutdown this time would hit an economy that’s easier to push off its feet. For each week the government is closed, fourth quarter GDP would shrink by 0.2 percent, according to Nariman Behravesh, chief economist at IHS/Global Insight in Lexington, Mass. A lengthy two-month shutdown would probably push the United States back into a recession, according to Moody’s Analytics chief economist Mark Zandi.

Second, a government shutdown might reshape the modern Republican Party. That’s because the ongoing political struggle over how to fund the US government and whether to defund or delay Obamacare is a very untraditional political battle. It has the usual component of a Republican versus Democrat fight, but the more important front may be Republican versus Republican, as tea party conservatives push for a confrontation that establishment Republicans don’t appear to want.

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