Analysis: Washington becomes the biggest risk to the US economy

Analysis: Washington becomes the biggest risk to the US economy

WASHINGTON - Consensus may be hard to find in Washington these days, but many corporate executives and economists seem to agree on one point: the biggest risk to the world's largest economy may be its own elected representatives.

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Down-to-the-wire budget and debt crises, indiscriminate spending cuts and a 16-day government shutdown may not be enough to push the US economy back into recession.

But Washington's policy blunders in recent years have significantly slowed economic growth and kept roughly 2 million people out of work, according to recent estimates.

Steep spending cuts are a big reason. But the governance-by-crisis also may be prompting businesses to sit on their cash rather than building new factories, buying more equipment and hiring more workers, some economists say.

"Increasingly I'm of the view that the reason why our economy can't kick into a higher gear is because of the uncertainty created by Washington," said Mark Zandi, chief economist of Moody's Analytics.

Congress on Wednesday voted to re-open the government and extend its borrowing authority through February of next year. But the deal did nothing to resolve the underlying disputes that led to the crisis in the first place - leading many to fear that the standoff may play out again in a few months. The plan sets up a forum to try to forge a more permanent budget deal, but few expect it to succeed.

"We have crisis after crisis after crisis and it has a corrosive impact on the economy," said Greg Valliere, an analyst with Potomac Research Group. "If you're a business, how do you make plans in this environment?"

Leading chief executives agree.

"Most CEOs I speak to in the United States say they're seeing a slowdown in business because of this," said Laurence Fink, the CEO of giant asset manager BlackRock Inc, in an interview on Wednesday. "I was on a conference call with many of them, and I heard across the board, a slowdown from the American consumer because of this narrative, so it's having an impact on our economy already - and it's going to have an impact on job creation at a time when we need more job creation."

Not all economists agree that the political circus in Washington is hurting the economy in a measurable sense. While worries over the debt ceiling have pushed up the government's borrowing costs over the past week, those increases are minimal, and the S&P 500 stock index remains near its all-time high.

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