News Column

Gov't Shutdown: Is It Time to Panic Yet?

October 1, 2013

Graeme Wearden, Guardian

U.S. Capitol (file photo)

What is the shutdown all about?

In a word, money. The US financial year ended at midnight last night. Under US law a new bill to approve funding for the next financial year was required by then, which must have been approved by the House of Representatives, the Senate, and the president.

What's the problem?

In two words, politics and Obamacare. The core problem is that the Republican party controls the lower house, or House of Representatives, while the Democrats control the Senate. Republicans have been pushing for the budget to include cuts to Barack Obama's healthcare bill.

Would the shutdown mean the entire US government grinds to a halt?

No. Essential services, such as social security and Medicare payments, would continue. The US army would keep operating. But hundreds of thousands of workers at non-essential services, from Pentagon employees to rangers in national parks, would be told to take an unpaid holiday.

This sounds unprecedented. Is it?

Nope. The US government has shut down 17 times since 1977. However, it has not happened for 17 years, since a face-off between Bill Clinton and the Republican-controlled House halted services for 28 days in 1996.

Why doesn't it happen in other countries?

The shutdown situation is a product of the US democratic system. The president is both head of state and head of the federal government, without a guaranteed majority in either of the legislative bodies where new laws are debated and voted upon (because presidents, congressmen and women and senators are elected separately). The president can't simply ram laws through Capitol Hill.

Is the shutdown going to cause a stock market crash?

Investors are certainly worried. A short shutdown of a few days probably wouldn't have much impact on the US, but if it dragged on the row could quickly hit economic growth. Moody's, the rating agency, calculates that a two-week shutdown would cut 0.3% off US GDP, while a month-long outage would knock 1.4% off growth.

Stock markets were down yesterday because of the risk of a US government shutdown and the danger that the Italian government may collapse. It's not a panic. Yet.

Graeme Wearden

(c) 2013 Guardian Newspapers Limited.

Original headline: US Federal government shutdown: Don't panic - yet

Source: (c) 2013 Guardian Newspapers Limited.

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