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UI Economist: No Financial Fiasco

While furloughed families are struggling to make ends meet without paychecks and those on WIC are wondering where their child's next meal with come from—at an overall economic level—America is not headed for another financial fiasco if the government does not raise the debt ceiling by October 17, said University of Iowa Associate Professor of Finance Art Durnev.

Durnev studies the intersection of politics and business, and says Americans need to differentiate between the government's inability to pay its bills and an unwillingness to pay them.

"So what we have here is just unwillingness to pay," Durnev said.

Think of it like missing a credit card payment, Durnev said. The worst thing that happens is interest rates increase. So, the country might see interest rates increase by a half percent—and the Federal Reserve is prepared for that, Durnev said.

"No, we should not be worried about (that), and be very selective when you read any sort of news right now," Durnev said.

America's biggest investors, Japan and China, might be wary of doling out money in the future, but Durnev said, the country will still be able to get credit.

Still, the shutdown is taking its toll. Mary MacNeil's son and daughter-in-law work for the Centers for Disease Control and haven't been paid in two weeks.

"They are having a very hard time managing their money when nothing's coming in," MacNeil said.

That will be the biggest problem—a drop in consumer spending because of furloughs and fear, Durnev said. He knows people are worried about their retirement accounts, too, and has some practical advice: if you can, spend less and save more.

"Don't follow the crowd. If you invest in stocks, keep your money in stocks. Hopefully, hopefully the situation, everything will recover," Durnev said.

Video interview with Tippie associate finance professor Artem Durnev available here:

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