Firstly, it should be noted that this is not the first time the U.S. economy has faced a government shutdown. The economy has witnessed 18 shutdowns since 1976, with the most recent one occurring in 2013, when the U.S. government closed its doors for 26 days. This resulted in an estimated cost of around $24 billion to the economy. The longest government shutdown in U.S. history lasted 35 days due to a partial shutdown, resulting in losses of approximately $11 billion and a 0.2% decline in economic growth.
The U.S. government is divided into three branches:
– The legislative branch (Congress)
– The executive branch (the President and his administration)
– The judicial branch (the courts)
What is Congress, and what is its relationship to government shutdowns?
The U.S. Congress is a constitutional institution and a legislative body in the political system, consisting of two chambers:
– The Senate, which has 100 senators and is considered the upper chamber.
– The House of Representatives, which has 435 members.
Both the House of Representatives and the Senate share the authority to declare war.
Congress is responsible for passing laws and exercising oversight and control over public affairs. It issues laws in a wide range of areas, including tax matters. Congress also has the right to amend the Constitution and is designed to prevent raising the debt ceiling. This can potentially lead to the United States avoiding defaulting on its debt.
(The U.S. Constitution separates powers, so Congress does not have the right to impeach the President, and the President cannot dissolve Congress).
“The United States is facing the risk of a government shutdown in four months due to Washington’s avoidance of debt default, as government funding expires at the start of the fiscal year on October 1.
This means that the shutdown will actually begin if Congress fails to pass a funding plan signed by the President to become law. A government shutdown, either partial or complete, occurs when Congress does not approve funding for the federal government.
What happens if the U.S. government shuts down? Millions of federal employees will find themselves without the necessary funding to carry out their work and will not receive their salaries. Estimates suggest that 1.8 million employees will go without pay during the shutdown period, and 850,000 non-essential employees will be placed on unpaid leave. This makes it difficult for them to meet their needs.
Due to the absence of these employees, many services will be halted or delayed, including services that rely on federal funding. The shutdown has economic consequences, including reduced production, decreased investment and trade, increased unemployment rates, economic contraction, leading to decreased inflation and increased borrowing costs. A government shutdown can lead to a recession, and as a result of the shutdown, the Bureau of Labor Statistics stops publishing data on inflation and unemployment, causing a decline in trust in the government.
As for government-funded services, the most affected ones include schools, museums, government institutions, public transportation, healthcare, the financial system, securities and stock exchanges, affecting financial markets, economic data, Social Security, airlines, disaster management, taxes, and education. Hundreds of government institutions close their doors.
“The current crisis stems from the Republicans in the House of Representatives refusing to move forward with spending at the agreed-upon levels between President Biden and House Speaker Kevin McCarthy, the Republican leader in Congress.
The dispute between the Republican and Democratic parties in the House over passing a special budget law for federal government agencies, which includes employee salaries and institutional expenses, among other things, is at the heart of this.
Republicans, who hold the majority in the House, oppose the budget’s approval, arguing that the spending levels are excessive and need to be reduced. This is a fact not without merit.
The information provided reflects the personal opinion of the analyst, Taiba Al-Rahbawi, and is not necessarily an absolute certainty; it is subject to potential error.
For communication or inquiries via Telegram, you can reach out to teiba_ammar.
https://t.me/Fundamental_analysisT
