A federal shutdown threatens America…and lawmakers face deadlock

  • World
  • September 30, 2023

The U.S. moves closer to shutting down federal agencies at midnight today as lawmakers reach an impasse over agreeing a short-term spending bill and the chances of averting it dwindle.

The U.S. fiscal year begins tomorrow, Oct. 1, but bitter disagreements among Republicans over the size of the federal debt have prevented passage of bills needed to keep the government funded and open.

A hard-line Republican House of Representatives rejected any temporary measures to save the country from closing federal agencies. Yesterday, Republicans rejected a plan proposed by their leader, Kevin McCarthy, to temporarily fund the government through a draft law that voted 198 to 232.

Moody’s, the credit rating agency, warned that the shutdown would be “negative” for U.S. sovereign debt, threatening its top rating and driving higher borrowing costs.

Here’s what happens in the event of a federal shutdown in the US:

1. No pay for federal employees: Hundreds of thousands of federal employees will be on unpaid leave, while members of the military and other employees deemed “essential” will continue to work without pay. The American Federation of Government Employees estimates that a full shutdown would result in about 1.8 million federal employees receiving their full-time salaries, and about 850,000 non-essential employees would be placed on unpaid leave, according to the Committee for a Responsible Public Budget, an independent organization. If achieved, these restrictions will be lifted and all employees will be paid in advance, the union said.

2. Only essential services: Only essential services will continue to operate, Social Assistance checks continued to be paid during previous shutdowns, and air traffic controllers, border guards and hospital staff remained on duty, but many services are likely to remain. Surveys of food and environmental sites other than national parks, including new applications for social security and medical care, will also have a greater impact on the closure period.

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3. Economic impact: Economists at Goldman Sachs estimate the shutdown will hurt economic growth by 0.2 percentage points each week in the fourth quarter, and Goldman’s note suggests it could take two to three weeks to lift the shutdown. Sachs economists dismissed it as saying “no immediate concessions have been made by either party”. According to the memo, “Even if the funding cuts were quickly lifted, the political environment before the (current) deadline is reminiscent of the situation a long time ago. The shutdowns.”

Oxford Economics estimates that the loss of productivity of government workers irreparably costs annual economic growth 0.1 percent a week, and a shutdown could indirectly hurt the economy because unpaid federal workers would cut back on their spending.

The potential shutdown is starting to weigh on Wall Street, with major stock indexes falling as the deadline nears.

4. No information for the Federal Reserve: Economists fear that the shutdown will also stop the release of federal government data, and that raises concerns about the Federal Reserve, which will be guided by this data to approve possible changes in interest rates. . The Federal Reserve has recently slowed the pace of raising interest rates as it tackles inflation.

In the absence of new data, the US Federal Reserve will be forced to make decisions with ramifications for the economy, without a clear picture of the situation, and the impact of a shutdown in the short term will be limited in the long term. , it could become a big problem if delegates fail to reach an agreement.

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  • Rolf Colon

    "Creator. Award-winning problem solver. Music evangelist. Incurable introvert."

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