US
shutdown: a guide for non-Americans
The
Guardian, Tuesday 1 October 2013
The
American government has begun shutting its non-essential services. Why? And
what will it mean?
Please explain what just happened
The
US government has begun shutting its non-essential services. Hundreds of
thousands of workers are waking up to the news that they are on unpaid leave,
and they don't know how long it will last. The shutdown, triggered at midnight
Washington time, will bring a range of services to a standstill across the
world's largest economy.
Why?
The
Federal government had no choice. The US financial year ended on 30 September,
and politicians on Capitol Hill have failed to agree a new budget for the
2013-2014 financial year. Even a 'stopgap' funding deal proved beyond them.
Without a budget deal approved by both parts of Congress, the House of
Representative and the Senate, there's no legal agreement to pay non-essential
staff.
Weren't they supposed to fix this last
night?
They
tried. A series of proposals rattled between the two sides on Monday night
until midnight struck without a deal.
Why couldn't they agree a deal?
Under
the US constitution, the president cannot unilaterally bring in legislation.
And despite weeks of talks, Republicans continue to include cuts and delays to
Barack Obama's Affordable Care Act in the budget legislation they sent up to
the Senate.
The
House of Representatives is controlled by the Republican Party, whose Tea Party
movement remain deeply opposed to Obamacare. They tried to use the budget as
leverage to crowbar changes to the Act. The Senate, which is under the control
of Obama's Democrats, has stood firm.
Will 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, will continue.
The
US military service will keep operating, and Obama signed emergency legislation
on Monday night to keep paying staff. But hundreds of thousands of workers at
non-essential services, from Pentagon employees to rangers in national parks,
will be told to take an unpaid holiday.
So what happens how?
US
politicians will meet again in Washington on Tuesday. Before Monday's session
broke up, the lower house proposed a 'bipartisan committee' to consider a way
forward. The Senate is expected to reject this proposal, sticking to its
position that Obamacare cannot be unravelled. Federal staff will remain unpaid
until a budget is agreed. A 'stopgap' funding plan is an option, but Obama
appeared wary of that option, arguing that would simply guarantee a repeated
fight in a few weeks' time.
How much damage will it cause?
If
people aren't getting paid, they won't spend as much in the shops. They may be
unable to meet essential financial commitments, such as mortgages and credit
card payments.
Analysts
at IHS Global Insight have calculated that it will knock $300m a day off US
economic output (total US nominal GDP, or output, was around $16 trillion last
year).
The
key issue is how long it lasts. Moody's Analytics reckons 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.
When did this last happen?
It's
the first shutdown since 1995-1996, when Bill Clinton and the lower house (and
its speaker, Newt Gingrich) also failed to agree on a budget to fund federal
services. That row ran for 28 days (over two stages).
But
it was a more regular event in the 1980s, usually for a few days at a time. In
total, the US government has partially shut down on 17 occasions. Here's more
details.
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.
In
Britain, for example, tax and spending policies are outlined in the budget,
presented to parliament by the chancellor of the exchequer. These changes are
brought into law in a finance bill in the House of Commons. That's in effect a
confidence vote in the government, and even the most fractious backbench MP
would balk at rebelling on it.
Finance
bills are also one area where the elected House of Commons has the upper hand
over the unelected House of Lords. The Lords have no power to reject a money
bill; they can only delay it for a month.
How does the US shutdown row tie in
with the debt ceiling battle?
They
are separate issues, but the shutdown is raising fears over the debt ceiling.
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 is now eating into valuable time to fix the debt ceiling.
Why can't they just raise the debt
ceiling?
Again,
legislation is needed. Republicans are again trying to link the plan to
Obamacare – arguing that the healthcare reforms are unaffordable.
How are the markets reacting?
So
far, there's no panic. Investors are calculating that the shutdown will be
short. But prepare for nervousness as that debt ceiling deadline gets closer.
The
dollar, though, is being hit – dropping half a cent against major currencies.
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