A sense of déjà vu as Republicans’ government shutdown reels in potential economic repercussions
It was a great relief to learn this week that all of America’s fish hatchery employees will report for duty no matter how long the country’s dysfunctional Congress keeps the government in shutdown mode.
And these plucky patriots are not alone in the federal employment force. They will be joined by International Space Station scientists and technicians, nuclear submarine engineers, money printers, engravers and a whole host of weird and wonderful workers on the US government payroll deemed essential to the proper functioning of the world’s biggest economy.
For those not keeping up with the goings-on in Washington, here’s the story so far. In a last-ditch effort to quash Barack Obama’s Affordable Care Act, a group of Republican lawmakers in the House of Representatives attached elements needed to finance it to legislation for the budget, then refused to vote in favour of passing the budget legislation.
The upshot is that the US government had no budget to fund operations for next year as of the deadline of midnight on Tuesday in America. This meant that the US federal government was forced to close down for the first time since the Republicans’ objection to some legislation proposed by then-president Bill Clinton, a Democrat, almost 20 years ago.
The morning after the deadline, some 800,000 federal workers were told not to come to work, while more than a million others were asked to work without pay.
It might sound like an awful lot of domestic party politics that has no significance whatsoever outside of the self-obsessive force field of the Washington Beltway, but the shutdown has potentially serious economic repercussions if it is allowed to persist for any length of time.
A sense of peace and calm came over the world of politics, finance and news when the government shutdown was finally announced with great drama at the stroke of midnight on Tuesday.
It was a similar feeling to the one that accompanies the inevitable summer power cuts in many parts of the Middle East.
When the circuit breaks, especially in the middle of the night, an absolute peace falls over the house. The sudden absence of air conditioning reminds you that true silence does not exist here, at least not very often. And then, after a few moments of listening to the emptiness, a slow creeping panic begins to rise along with the temperature. And then we ask: “What are we going to do?”
And so it was with the shutdown. The constant chatter in America has focused on little else for weeks.
In the final hours leading up to the midnight deadline we barely slept as iPhones and BlackBerry phones chimed in unison with each news update on the impending crisis. And then, peace.
But moments later stock futures in New York began a wild ride of panic, anticipating a volatile trading session ahead. And the updates began again.
The immediate real economic impact of the shutdown is not expected to be that great.
But with markets barely on the recovery track, any amount of disruption is unwelcome. Markets fear the unknown and the actual fallout from the shutdown – how long it will last, or whether it will lead to a serious economic event such as a US government debt default – are all unknown.
On October 17, the US government must reset its debt limit or it will not be able to pay its creditors, thus facing a humiliating credit downgrade.
If the Treasury is in shutdown mode on that day, it may not be able to do that in time. Such an eventuality, while very unlikely, is still an unknown. And it has got the markets, which are largely running on sentiment these days, spooked in the extreme.
There are also some real market problems caused by the shutdown. The department of agriculture is largely closed – except the fisheries inspectors of course – and so won’t be producing the economic reports that keep the commodities markets ticking over. So there will likely be some volatility in wheat, corn and other such markets as the shutdown continues.
There were some worries that the Securities and Exchange Commission (SEC) might not be able to get on with Twitter’s initial public offering set for this week, but the SEC has assured everyone that it has adequate funds to keep going for a while. But only for a short while.
The Small Business Administration, meanwhile, is closed, which means loans and grants worth tens of billions of dollars will not be handed out while the government is closed. This sucks real money out of the economy and may force some small and mid-sized firms out of business, with a damaging knock-on effect on suppliers and customers around the world.
So thanks to the childish, partisan idiocy of the extreme-right wing of the Republican party, the global economy is again plunged back into uncertain volatility, putting the recovery on hold once more.
But fear not, as the markets tailspin back into the abyss, at least there will be fresh farmed fish to eat on a well-maintained space station. Perhaps we should send the politicians up there to try it out.
Updated: October 2, 2013 04:00 AM