The world’s largest economy, the United States, is on the brink of a federal government shutdown. It is going to cause economic crises in the country.
A clash occurred between President Joe Biden’s Democrats and Republicans counterparts in Congress over the spending bill of the current fiscal bill on September 30.
The Republicans in Congress refused to support must-pass funding legislation unless massive spending cuts are made. These Republicans are the allies of former President Donald Trump.
What is the federal government shutdown?
According, to the Anti deficiency Act (passed in 1884 and amended in 1950), federal agencies cannot spend or obligate any money without an appropriation (or other approval) from Congress. When Congress fails to enact the 12 annual appropriation bills, federal agencies must cease all non-essential functions until Congress acts. This is known as a government shutdown.
The same situation has arisen in the US. To date, 14 shutdowns have occurred since 1984, which lasted for a short period like a day or two. The most recent one with a longer duration was in 2018, lasting for 34 days from December 2018 to January 2019.
Currently, the US government is on the brink of a federal shutdown from October 1, 2023. The clock is clicking very fast and the risk is increasing with every passing day.
This shutdown means complete discontinuation of non-essential government services unless the US Congress passes the necessary spending bill.
What is the effect of the federal shutdown on the US economy?
The US economy will have ripple effects, affecting the federal workers not receiving their salaries to break in the funding of essential policies for funding the households or civilian beneficiaries. The federal workers comprise the Department of Defense and many military personnel of the US which in turn can hamper the national security of the US.
It can also affect the publishing of national economic data to the operation of federal courts, museums, and national parks. The US is already facing a budget deficit of $ 3 billion. This deficit has doubled during the pandemic times.
It can hamper investment in the country as the bond investors are too at risk. Moody’s, the credit grader, changed its rating outlook for the US from stable to negative, citing risks to the nation’s fiscal strength and political shutdown in Congress.
The shutdown can also lead to air travel disruptions due to paucity of funding. It can force the US government to stop the training of many new air traffic training and work on the training pipelines.
Many programmes serving more than 10,000 disadvantaged children, mothers would immediately lose federal funding, although they might be able to stave off immediate closure if the shutdown doesn’t last long. This can be harmful for their physical growth.
The risk of a federal government shutdown in the US has made the Democrat government cut on to current spending and curtail migration.
Both Democrat and Republican Senators have been discussing a path forward for $106 billion in security funding President Joe Biden sought for Ukraine, Israel, Taiwan, and the US border. The package was held up by Republicans, demanding asylum and changes in other immigration policies.
The current federal shut-down risk can be considered negative for Joe Biden’s candidacy in the presidential election of 2024. Despite the victorious wave of Democrats in Virginia election 2023, there are still many steps for Democrats to take to bring the federal situation under control.
No government can work without a proper fiscal budget and appropriation from the Congress. It would be interesting to see what turns would take in the US governmental setup.