After weeks of wrangling the American government is shutting down. Why? What is the shutdown all about? In a word, money.
The United States federal government shut down for the first time in 17 years on Tuesday, as Congress failed to end a bitter budget row after hours of dizzying brinkmanship.
Ten minutes before midnight, the White House budget office issued an order for many government departments to start closing down, triggering 800,000 furloughs of federal workers, and shutting tourists out of monuments like the Statue of Liberty, national parks and museums.
What it means?
Under U.S. law a new bill to approve funding for the next financial year is required, which must have been approved by the House of Representatives, and the Senate, and the president. This has yet to happen.
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. Key parts of the Affordable Care Act kick in on Tuesday, so this is a last-ditch attempt to thwart the legislation.
Early on Sunday morning, the House approved legislation that would delay the act by a year. The Senate has refused to meet to discuss it. It’s deadlock.
Would the shutdown mean the entire US government grinds to a halt?
No, it’s not an anarchist’s (or libertarian’s?) dream. Essential services, such as social security and Medicare payments, would continue.
The US army would keep operating, even if pay packets are suspended. 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 (full breakdown here).
This sounds unprecedented. Is it?
Nope. The U.S. government has shut down 17 times since 1977. However, it has not happened for 17 years, since the historic 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 U.S. 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.
How does the US shutdown row tie in with the debt ceiling battle?
They are separate issues.
The shutdown battle is about approving future spending. The debt ceiling is another problem facing Washington — America has a legal limit on its borrowing of $16.7tn dollars, and it’s likely to hit that point in mid-October.
If a deal isn’t reached, then America would run out of borrowing room, meaning the world’s biggest economy would default on its debts. Both problems need solving — and a shutdown would eat into valuable time to fix the debt ceiling.
Why can’t they just raise the debt ceiling?
It’s up to the House of Representatives and the Senate. And you will never guess what the Republicans want in return (yup, cuts to Obamacare).
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 then 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 a whole 1.4% off growth. Stock markets are down on Monday because of the risk of a US government shutdown and the danger that the Italian government may collapse. It’s not a panic. Yet.
— © Guardian Newspapers Limited, 2013 and agencies