Surprise US government shutdown a worrying reflection on Washington
Widening deficit may add to investor concerns as stock markets remain on edge
For the second time in three weeks the US slipped into a government shutdown after Republican senator Rand Paul made a one-man protest against the proposed spending Bill. The Kentucky senator invoked the “filibuster” – a long-standing device used as a delaying tactic – in the Senate on Thursday evening, taking Washington’s political class, and his own party, by surprise.
That the delay came out of leftfield is a worrying reflection on the workings of Congress and the Republican leadership.
Despite controlling all levers of power in Washington, it was a Republican not a Democrat who triggered the temporary government shutdown. Worryingly for house speaker Paul Ryan, by the time the Bill made it over to the House of Representatives at approximately 5am, 67 members of his own party rebelled. Ultimately the Bill passed thanks to the support of some Democrats, who welcomed the commitments to extra domestic spending.
While Paul was labelled irresponsible by many, he was in fact expressing mounting concern within the Republican ranks about fiscal profligacy. The Republican Party, traditionally the party of pared-back government and sensible debt levels, is now overseeing an astonishing increase in federal spending. The $300 billion in extra expenditure pencilled in over two years comes on top of December’s sprawling tax package.
Further, the White House is expected to come forward, as early as Monday, with an infrastructure package, which will again drag on the government’s coffers.
The medium-term economic implications of the widening deficit may add to ongoing investor concerns about the state of the US economy. The new budget deal could push America’s deficit into the $1 trillion zone. The $20 trillion national debt is also expanding, with the recent tax overhaul expected to add an estimated $1.5 trillion to the national debt over 10 years.
With US stock markets remaining on edge, fresh concerns about the US’ long-term debt and deficit path is not what the world’s largest economy needs. But with American workers expected to gain their first boost from the recent tax changes in their paychecks this month, the Trump administration will be hoping that the short-term boost overrides any concerns about the long-term health of the economy.