Government Shutdown 1

Lalitha Nagarur 

The US government shut down on Tuesday the 1st of October, lasting for 17 days and furloughing approximately 700,000 government employees out of the 2.1 million people in the federal workforce, after the US Congress failed to pass a budget before the fiscal year ended on September 30th.

The failure to settle on a budget for the fiscal year of 2014 arose from the disagreements between the two chambers of the Congress, the Republican-led House of Representatives and the Democratic-led Senate, mainly in regards to the Patient Protection and Affordable Care Act (“Obamacare”) which would have been put into practice. The Affordable Care Act made in 2010 is believed by President Obama and the Democrats to make healthcare more affordable for most Americans. The law requires all Americans to purchase health care while offering subsidies to make coverage more affordable. It aims to extend health insurance coverage to the estimated 15% of the US population who lack it and to eventually slow the growth of the US healthcare spending, 17.7% of its GDP was spent on health care in 2011, the highest from a report by OCED. The Republican Party and numerous conservative think-tanks and advocacy groups have fought the law since it was first proposed by Barack Obama in 2009 with such opponents stating the law will hurt employers and amounts to overreach by the federal government. This led to the House of Representatives offering several continuing resolutions delaying or defunding the Act leading to a budget impasse resulting in a government shutdown.

Ten minutes before midnight on 30th September orders were issued, from the White House budget office, to start shutting down government offices.  Only services and employees deemed essential continued to function. This led to around 700,000 government employees being placed on mandatory unpaid leave although many were back at work before the shutdown ended and were paid retroactively. There were implications to tourist attractions with the Statue of Liberty closed and most national parks, museums, federal buildings and services also closed. According the US Travel Association the estimated economic cost of lost travel spending was $152 million per day. In addition pension and veteran’s benefit cheques were delayed and while initially benefits paid to the families of soldiers recently killed abroad were suspended, they were restored after a public outcry. Those not affected were workers like teachers, fire-fighters and doctors as they are paid for by individual state governments, not by the federal government.

On October 17 President Obama signed the Continuing Appropriations Act, 2014 after Congress passed it ending the government shutdown and suspending the debt ceiling of $16.7 billion until February 7, 2014. According to the independent ratings agency Standard & Poor’s the partial federal closure took $24 billion out of the US economy and has cut the US growth from 3% to 2% in the fourth quarter. Stock markets, however, responded relatively mildly after the shutdown began. Although all three US indexes went down significantly after the shutdown began, the news that a debt ceiling deal might be reached sent them all higher.

The US government shut down for 17 days, the third longest period of all shutdowns in US history, resulting in a loss of $24 billion for the US economy. All focus is now on the debt ceiling deal with the roaming uncertainty of a debt default which if reached would lead to markets around the world plunging and global interest rates to rise. All eyes are now on February 7, 2014.

One comment on “Government Shutdown

  1. Reply M Singh Feb 6, 2014 3:52 pm

    A very informative article, Lalitha. But I wanted to read your views on this shutdown and whether you think this could be avoided?

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