America has two weeks left until the cash runs out
Fears grow Congress might not be able to agree increase to US borrowing limit
A sign announcing the closing of the Statue of Liberty after Congress plunged the nation into a partial government shutdown in a long-running dispute over President Obama’s healthcare law. Photograph: Mark Lennihan/AP
The calm response in the financial markets to the US government shutdown on Tuesday, the first since the Clinton administration, suggests investors see the latest budgetary stand-off as little more than another ugly political spat between Republicans and Democrats in Washington.
But, as the shutdown continues, with the warring factions dug in, concerns grow that the stalemate might not be resolved by the time the US runs out of cash less than a fortnight from now – on Thursday, October 17th – and that a bitterly divided Congress might not be able to agree an increase to the US borrowing limit.
Failing to raise the so-called debt ceiling would mark the first time that the US has defaulted on its loans and could transform an unseemly domestic political dispute into a global economic crisis.
Republicans in the House of Representatives, pushed by the far-right Tea Party conservatives in their ranks, have turned once-routine Congressional deliberations on a short-term budget funding for government and an increase in the debt ceiling into an all-or-nothing fight to bring down Obamacare.
Obama’s flagship healthcare law extends health insurance to about 30 million uninsured Americans who previously could not afford it or could not be approved for it because of pre-existing conditions.
Republicans, many of whom were elected on an anti-Obamacare ticket after its passage in 2010, claim the Affordable Care Act is unaffordable, unpopular with the public and should be ditched.
Hard-line Republican congressman John Fleming from Louisiana described it as “most dangerous piece of legislation ever passed” and the “most existential threat” to the economy since the Great Depression
House Republicans forced the government shutdown by insisting that any budget include provisions to delay or ditch the healthcare law. Democrats refused to allow a budget pass with such conditions.
Far-right House Republicans, who oppose most government spending in general, recognise the greater leverage to be used from threatening a debt default with the ensuing financial calamity that would follow if the world’s largest economy could not pay for the cost of running itself or its creditors.
Government shutdowns are not new in the US – there have been 17 since 1976 – so their cost can be largely quantified. The cost of a US default is not.
The last shutdown, continuing for a record 21 days over the 1995-1996 new year, cost the government $1.5 billion (€1.1 billion) – about $2.1 billion in today’s money. This time around, it’s estimated to be costing about $300 million a day, research firm IHS said. Goldman Sachs estimated that a three-week shutdown could shave about 0.9 per cent off US GDP of $15.7 trillion.
This is small beer compared with the cost of a default. Market analysts are watching the shutdown in the context of whether it increases or decreases the chances of a default, a scenario that would mark an unprecedented escalation of the long-running budgetary disputes between Democrats and Republicans.
The US government has been in a state of dislocation for some time. Since 2009, it has funded itself through short-term funding measures, known as continuing resolutions.