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House Republicans dig in, aiming for a federal government shutdown

By Masao Suzuki |
September 30, 2013
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San José, CA -- On Sept. 29, the House Republicans passed a temporary spending bill for ten weeks, starting Oct. 1 if the Affordable Care Act (often called Obamacare) is delayed for a year. With the Democrat-controlled Senate already having turned down similar measures and a veto promise from President Obama, the federal government is headed for its first shut down since 1996.

This so-called shutdown would not actually shut down the federal government. Social Security checks would continue to go out, mail will be delivered, and other “essential” services would continue. Ironically, this includes most of the funding for the Affordable Care Act, which like Medicare and Medicaid, is considered an essential service.

But without any spending authorization for Fiscal Year 2014, which starts Oct. 1, “non-essential” federal services will shut down. This would include the closing of about 400 National Parks, monuments and museums. Social Security applications, the passport office, Small Business Administration loans, mortgage guarantees from the Federal Housing Authority (FHA), could all be stopped in their tracks. Up to 800,000 federal workers, or 40% of the federal government workforce, could be furloughed without pay.

There could be a larger economic impact of a loss of up to 1.4% of Gross Domestic Product, which measures the output of goods and services in the U.S. With the U.S. economy only growing at a 1.8% rate in the first half of this past year, this could put the economy close to tipping into another recession.

Even worse, the House Republicans are vowing to repeat this later in October when the federal government hits its borrowing limit. If the House Republicans refuse to raise the debt limit, the federal government will not have enough cash to make good on its promises to pay. If the federal government does not pay interest on the federal debt or pay for its bonds that come due, this would be a debt default that would echo through the entire world economy, as the rest of the world holds more than $5 trillion of U.S. government bonds, which could drop in price, sending interest rates up.