When I read that the American lawmakers have shutdown non-essential services leaving nearly a million government employees on unpaid leave, ‘furloughed’ as they say in the States, I couldn’t quite believe they had gone down this road again – politicians gone mad!
Does anyone remember when this happened in Australia? Back in ’75 a similar stalemate was reached so the British Governor fired the PM and appointed a replacement who immediately approved the funding and dismissed the rest of Parliament. Then they had an election, and they haven’t had another shutdown since! If only the same could happen in America.
Nevertheless, until agreement is reached in the US between the Republicans and Democrats, amusement parks, museums and tourist attractions will remain closed.
Why Did This Happen?
The Democrats and Republicans failed to reach agreement and pass the budget before the deadline ended. The sticking point is on the cost and funding of the Affordable Care Act, ‘Obamacare’ in US speak. The Republicans, who have a majority in the House of Representatives, want to restrict or postpone spending on Obamacare whereby the Senate, where the Democrats are in majority, would not agree to this which has resulted in the deadlock. Without an agreed budget the funds are not available to pay non-essential staff.
The US Treasury has written to Congress stating that the extraordinary measures being taken by it will not last after 17 October and the department will be left with only $30 billion to meet its commitments. The letter continued “This amount would be far short of net expenditures on certain days, which can be as high as $60 billion. If we have insufficient cash on hand, it would be impossible for the US to meet all its obligations for the first time in our history”. At the same time, the government will also reach its legal limit of raising debt.
Many experts are saying the stalemate is political posturing and a prelude to the debt ceiling debate.
Should We Be Worried?
Both parties are refusing to negotiate but agreement needs to be made in the coming days. If Congress fails to raise the debt limit, the US government will be forced to default on its obligations which will destabilise the entire global financial market.
The dollar has taken a bit of a tumble but the markets are not panicking. This suggests that everyone expects an appropriate solution to be found before 17th October and that the debt-ceiling will be raised.
I think it’s inconceivable that the US Government will default, as US credit ratings would be downgraded, the markets will react and re-price and with the US government having insufficient funds to spend, the US economy will nosedive into recession. Anyone with any sense won’t let that happen, and we all know that politicians are eminently sensible people.
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