The latest fiscal crisis — which shut down the U.S. government for 16 days — is finally over. But for many Americans, including me, it will be hard to get past the last several weeks of watching the country nearly tumble over a financial cliff (again).
On Wednesday, Congress passed a last-minute deal to reopen the federal government and temporarily raise the debt ceiling. Wednesday’s deal means that the U.S. government won’t default on its debt obligations after all (at least not until the next debt limit fight, which is scheduled for February) and the hundreds of thousands of Americans who have been furloughed since Oct. 1 can now get back to work.
Overnight, the country has gone from teetering on the edge of a possible recession to business-nearly-as-usual. However, analysts say that the economic damage from the past several weeks of fiscal gambling is substantial — and is likely to slow down the economic recovery even more.
According to one estimate, floated Wednesday by the credit rating agency Standard and Poor’s, the nearly three-week standoff cost the U.S. economy at least $24 billion in lost productivity and spending. Meanwhile, the emotional hangover from weeks of government gridlock could haunt the economy for months, say experts, particularly since the latest deal to ward off economic disaster is only good for another three-and-a-half months or so.
“The short turnaround for politicians to negotiate some sort of lasting deal will likely weigh on consumer confidence, especially among government workers that were furloughed,” said the S&P in an Oct. 16 press release. “If people are afraid that the government policy brinkmanship will resurface again, and with it the risk of another shutdown or worse, they’ll remain afraid to open up their checkbooks.”
I know that’s true for me. The past several weeks of crossing my fingers and hoping that Congress doesn’t actually fail to pay the government’s bills made me instinctually not want to spend. Knowing that we could go through this all over again in a few short months also makes me want to build up my emergency savings fund as quickly as possible and hunker down, just in case.
To some extent, that’s a good thing. In a Washington Post column posted Tuesday, Michelle Singletary reminded readers that if they learn anything from the latest fiscal crisis, it should be this: No matter how secure you think your finances are, don’t neglect your emergency savings since you never know what’s around the bend.
“With all due respect, the shutdown should be a wakeup call for all of us,” wrote Singletary. “You can’t count on your job always being there, even in positions or careers that have historically been viewed as unemployment-proof.”
Personal finance experts routinely advise consumers to build up an emergency fund that’s big enough to pay expenses for at least six months or more. However, according to a recent poll by Bankrate, just 24 percent of Americans have actually followed through on that advice.
Perhaps the latest fiscal crisis will help reverse that trend. After the Great Recession, Americans substantially improved their credit habits. According to an April 2013 report from the New York Federal Reserve, for example, Americans shaved their debt loads at a record pace after the recession and voluntarily reduced how much they charged to their cards.
The U.S. economy needs consumers to spend more heavily in order to grow. However, in today’s particularly uncertain climate, it’s also important to make sure you’re financially prepared for another disaster — just in case.