As the clock ticks towards midnight on Saturday, September 30, all eyes turn towards the US Congress where the funding for a substantial part of the federal government is poised to run out, threatening to grind all sectors to a halt. Should the shutdown persist, it portends yet another blow to the already precarious American economy.
Merely four months after averting a catastrophic default on debt payments, the world’s largest economy once again teeters on the brink of crisis, with the effects of the shutdown expected to surface by the end of this week.
If Congress does not agree to raise the debt ceiling, some government departments are compelled to suspend operations and grant up to 800,000 federal employees a leave of absence. This translates into the closure of national parks and museums to thousands of visitors, in addition to Americans potentially having to wait for passport renewals or acquire certain permits.
Moreover, if Congress refrains from intervening, the salaries of current and veteran military personnel will not be disbursed. Nonetheless, Congress members will continue to receive their salaries, Americans will continue to receive their mail, and social security entitlements will be paid.
A Not-So-Unfamiliar Scenario
This is not an unprecedented situation for the United States. Since 1976, the economy has experienced 18 shutdowns, the most recent being in 2013 when the American government closed its doors for 16 days, costing the economy $24 billion, according to Standard & Poor’s. The United States Office of Management and Budget estimated that the lost production during that period was at $2 billion, while lost revenue for the tourism sector was pegged at $500 million.
These are merely the direct losses that the world’s largest economy incurs with each government shutdown. However, there are also indirect losses, such as disruption to some private companies partially tied to the government, as well as losses in the private sector due to federal employees curbing their spending.
The American economic sphere is teetering on the brink of disruption as the United States faces the grim possibility of a government shutdown.
The clock ticks toward midnight on Saturday, 30th September, marking a pivotal moment where substantial funding for the federal government might expire, threatening a paralysis across all sectors. Should this shutdown proceed, it will undoubtedly deliver another blow to the already unstable US economy.
Under the Microscope: The Congress Dilemma
Focus steers toward the US Congress, with anxiety heightening amidst uncertainties over whether an agreement to lift the debt ceiling will be reached.
Absent an accord, several government agencies will be forced to suspend operations and grant up to 800,000 federal employees leave, translating into the closure of national parks and museums to thousands of visitors. The delays may cascade into other areas, like passport renewals and permit issuances for American citizens.
Military and Government Staff on Tenterhooks
If Congress refrains from intervention, the salaries of current and veteran military staff will go unpaid. However, Congress members will continue to receive their salaries, Americans will still receive their mail, and social security entitlements will be dispensed.
Echoes from the Past: Not the First Economic Challenge
This is far from the first time the US has navigated these tumultuous waters. Since 1976, the economy has witnessed 18 shutdowns, the last of which occurred in 2013, lasting 16 days and costing the economy, as per Standard & Poor’s, a staggering $24 billion.
Potential Economic Ramifications
In the imminent hours, a plethora of damages looms over the American economy unless a budget agreement is realized. Key negatives to be anticipated include a decline in the GDP growth, a rise in unemployment rates, delays in government employee wages, and a disruption in the transportation sector if the government shutdown materializes on 1st October.
Every week of government closure is projected by “Bloomberg Economics” to reduce the annual GDP growth by 0.2% and elevate the unemployment rate temporarily by 0.2% in October.
Furthermore, federal contractors, ranging from major corporations to federal building guards, are estimated to experience approximately $1.9 billion in daily lost and delayed revenues.
An Unequal Impact: Big vs. Small Contractors
While large contractors such as Lockheed Martin and General Dynamics may not be substantially impacted due to prior hefty payments and their collective contracts being valued at around $100 billion in 2022, smaller contractors relying on short-term payments and renewable contracts might bear the more significant brunt amidst the impacts of inflation and interest rate hikes.
Military and Civilian Workers Bear the Brunt
Moreover, the shutdown implies 1.3 million military personnel and 2 million civilian workers not receiving their salaries during the shutdown period, causing ripples in expenditure patterns. Although they will automatically receive their pay once the shutdown ends, temporarily-contracted employees have not received their overdue salaries during previous closures.
Transportation Sector in Disarray
The Federal Aviation Administration (FAA) has previously indicated that a shutdown would necessitate unpaid leave for over 17,000 employees, including 1,000 air traffic controllers under training. Moreover, the shutdown would provoke congestion and disrupt travel, costing the US travel sector $140 million daily, according to the US Travel Association.
Moody’s Warning and Historical Precedents
Moody’s agency warns that the US government shutdown could negatively impact its sovereign rating, especially following a one-notch downgrade by Fitch agency last month due to the debt ceiling crisis. The largest two US government shutdowns in 2013 and 2018 cost the American economy approximately $24 billion and $11 billion, respectively, causing GDP growth to dip in subsequent quarters.
Conclusion: A Path Forward
In navigating through this precarious economic and administrative juncture, every unfolding event in the US Congress becomes pivotal. The decisions made, or not made, in the coming days will sketch the economic path forward, either steadying a rocky boat or potentially sending economic ripples across various sectors and global markets.
A government shutdown occurs when non-essential discretionary federal programs close due to a lapse in appropriations. In the United States, this situation arises when Congress fails to pass or the President fails to sign appropriations: legislation funding federal government operations and agencies.
The consequences of a shutdown can be far-reaching, affecting not only governmental sectors but also resonating throughout the economy by affecting private businesses and individual lives. History has seen such shutdowns deal significant blows to the US economy, engendering a multitude of direct and indirect repercussions.
The complex interplay between political decision-making and economic stability becomes particularly evident in these circumstances, prompting vital debates on governance, fiscal policy, and national priorities.