As the U.S. government shutdown continues into its second week, business leaders are becoming more concerned with its effect on the economy.
The Wall Street Journal reports limited signs of economic damage, but that a prolonged shutdown may cause more widespread damage. According to economists, a long shutdown risks “restraining key parts of the economy that had been expected to accelerate in coming months.” That many companies are reluctant to take on too much risk given this precarious situation emphasizes the overall impact of the federal government.
For many in the M&A world, economic recovery is necessary for increased activity. In a survey conducted by MergerMarket, 66% of respondents said the economy is delaying an M&A rebound and 67% said the economy is the most essential factor in driving a rebound.
Unfortunately, the shutdown also reveals just how fragile the economy really is. Although we’ve seen growth in a couple of sectors, healthcare for example, it hasn’t been sustained across the board.
What makes the shutdown different from the past 17 ones is the looming pressure of the debt ceiling. Although markets may have recovered in the past, investors are becoming increasingly anxious; many are shifting their money out of Treasury bills.
Everyone agrees that a government default on debt would be bad, but there’s no telling how bad it would be. We can certainly expect global ramifications. For centuries, U.S. debt has been thought of as safe and reliable; defaulting would change that and may impact us for years to come.
The debt ceiling only points to a greater debate in the US – how to solve the debt problem. Regardless of your political affiliation, the financial reality is the U.S. is overwhelmingly in debt and this trend cannot continue.
Between the government shutdown and the debt crisis, the future looks uncertain. What if the shutdown continues for another week, or two or three? What if the U.S. government defaults? Are you prepared for these scenarios?
Since we never know what the future holds, the best way to succeed in any circumstance is planning ahead. Have contingency plans in place. For example, you may save cash, take on more debt when rates are lower, expand to another country or reduce your dependency on the U.S. government.
The point is to proactively develop your business plan. That way, when the situation arises, you can implement a strategic and carefully crafted plan instead of reacting out of impulse and panic.