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Shutdown Causes Biggest Drop In Economic Confidence Since Lehman

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The partial government shutdown has Americans nearly as freaked out about the economy as the event that triggered the 2008 financial crisis, according to a new survey by Gallup.

U.S. economic confidence last week suffered its biggest one-week drop since Lehman Brothers collapsed on September 15, 2008, Gallup reported. The polling firm's Economic Confidence Index tumbled 12 points as Americans became more worried about congressional dysfunction, which could cause a catastrophic debt default by the U.S. government. Confidence fell by 15 points the week Lehman collapsed.

gallup confidence

If lawmakers do not increase the country's borrowing limit by October 17, the government won’t have enough money to pay its bills and will be at risk of defaulting on some of its debt. Although it is difficult to predict what will happen if Congress does not come to an agreement by then, several experts have warned that a U.S. default would ignite an economic crisis much larger than the global disaster that followed the end of Lehman.

In the five months after Lehman filed for bankruptcy with $517 billion in debt, the U.S. stock market lost nearly half its value, Bloomberg New notes -- although the Lehman collapse was not the sole reason for that decline. Unemployment also hit a thirty-year high of 10 percent, as a recession that began before Lehman's collapse worsened sharply during the crisis. Five years later, the entire world has yet to fully recover. Joblessness is still a worldwide epidemic, and many families are too distrustful of the economy to take chances with their money.

The size of Lehman's debt had very little to do with the 2008 crisis, and the size of U.S. debt will probably have no influence on the financial turmoil that would follow a potential U.S. default. Still, Bloomberg recently pointed out the eye-popping statistic that the firm's debt at the time of its bankruptcy was 23 times less than the $12 trillion the government currently owes.

government debt lehman

While Main Street may be shaken up by the possibility that lawmakers will not raise the debt ceiling, Wall Street appears to be playing this possibility fairly cool. The price of insuring against a U.S. debt default has changed little in the past week, a sign that investors are far from panicking about the possibility of hitting the debt ceiling. That said, some investors are worried that Wall Street's calm demeanor may encourage politicians to act too late against the dangers of default, The New York Times reports.

On Tuesday, nine days away from the looming debt ceiling deadline, there is no clear sign of lawmakers coming to an agreement on Capitol Hill. President Barack Obama told House Speaker John Boehner (R-Ohio) that he is still not willing to negotiate on reopening the government or on legislation that would prevent a U.S. default.

Infographic by Alissa Scheller

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